How to Track Loan Expenses for the Paycheck Protection Program

Receiving your Paycheck Protection Program (PPP) loan doesn’t mean the hard work is over. For the loan to be forgiven, you must spend the funds on qualifying expenses within an eight-week period after the disbursement—and carefully track that spending. Providing detailed and specific information on how your PPP funds were spent will be vital to having your lender forgive your loan.

How Do I Track Eligible Expenses?

The federal government has not released guidelines for tracking eligible expenses. Still, you eventually will have to submit a loan forgiveness application and supporting documentation to your lender. Each lender may have different requirements for what it considers to be acceptable proof of spending, but, in general, you’ll need:

• Verification of full-time or full-time equivalent employees paid and their rates
• IRS payroll tax filings
• State income, payroll, and unemployment insurance filings
• Verification of payments made for mortgage or lease obligations and utilities

There are several different methods you can use to track eligible expenses in preparation for applying for PPP loan forgiveness. The two best ways are to use your existing accounting software or to use a spreadsheet program, like Excel.

Use Your Accounting Software

If you use accounting software, you’ll probably be able to track your PPP-eligible expenditures with a few adjustments. Here are some general steps to help you create a tracking system within your accounting software.

Set Up a ‘Long Term Liability’ Account

Although all accounting software treat this differently, here’s an example of how this might work using QuickBooks Online. Go to Accounting in the left navigation bar and then click on Chart of Accounts. Create a new account and designate it as a Long Term Liability account. Be sure to add “PPP” or another designator in the title, so it is identifiable easily as the PPP loan account. Fill in the other necessary information on the new account screen and click Save.

Create a Separate Bank Account

We recommend opening an actual separate bank account, but some banks are not opening new accounts at this time. If that’s the case, you can still track it in your accounting software as if it were an actual separate account. Either way, make sure you reconcile this account with your regular bank accounts to be sure you are not duplicating PPP funds.

Set Up the Loan Vendor in Your Vendor List

If your lender is already in your vendor list, create a new vendor with the lender name followed by “PPP” or some other indicator so you can define what that particular vendor setup is for clearly and why there are two vendors with the same name.

Book Your Loan Disbursement

Once you have your new vendor set up and your Chart of Accounts is ready, post the deposit of the PPP funds appropriately.

Track Expenditures

You have some options when it comes to tracking the expenditures in your accounting software. Depending on what system you use, some of these suggestions may work better for you than others:

• Use the PPP bank account to pay all the eligible expenses.
• Pay eligible expenses from your regular bank account as normal and use the PPP bank account to “reimburse” your regular bank account. You can usually do this by posting a transfer from one account to another.
• Set up PPP-specific expense accounts to track payments, using your PPP bank account as the payment source.

Prepare Reports

Now that you have everything you need to create your reports. You should be able to create a report that filters to show the PPP income and expenditures in your accounting software. For example, in QuickBooks Online, you can create a customized profit and loss report filtered to show only the PPP accounts you have set up.

While using your accounting system will make tracking easy, less error-prone, and more reportable, if regulations around PPP tracking change in the future, it may be difficult to make the necessary changes in your accounting software and also move your data to compensate for the changes.

Use a Spreadsheet

If you don’t have accounting software or are not comfortable making changes to your Chart of Accounts, you can use a spreadsheet. You can track the PPP income and expenses in your accounting system as you normally would and track the PPP-specific transactions in a stand-alone spreadsheet. If you choose to use a spreadsheet, here are a few tips to help keep you organized.

Make Separate Tabs for Each Expenditure Category

This is where you will post each transaction in detail. Make sure to include the date, vendor, amount, and any identifying number with each transaction so it can be tracked back to your accounting system and bank account easily.

Make a Summary Tab That Shows Your Loan Income

Make sure the tab lists summary numbers for each expenditure category as well as a net amount. You should be able to link the summary number cells to the total on the detailed category pages to eliminate manually transferring the numbers. This will make it easy to see how much you’ve spent in each category in comparison to the whole PPP loan disbursement amount. This summary sheet can act as your profit and loss report when it comes time to apply for loan forgiveness.

Create a Formula to Track Expenditures

On your summary page, create a formula that will tell you how much of the expenditures are payroll-related and how much are other expenditures. This will help you monitor your payroll costs and make sure you’re following the rules for loan forgiveness.

A spreadsheet might be easier to use and manage than your accounting software when it comes to tracking PPP expenses. However, keep in mind that manual entry can be time-consuming and spreadsheets are more prone to entry errors because accounting software has checks and balances in place.

Whichever method you choose, make sure it is accurate and as detailed as possible. Being vague in this area will not win you any points with your lender when you apply for loan forgiveness.

Mapping Eligible Expenses Under the PPP

When tracking expenses for the PPP loan forgiveness as determined by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), make sure to look at:

• Payroll costs (must be at least 75% of the forgiven amount): Salary, wages, commissions, or tips ($100,000 annual cap per employee), along with employee benefits including vacation, parental, family, medical, or sick leave as well as health care benefits and premiums, and retirement benefits
• State and local compensation taxes
• Sole proprietors and independent contractors: Wages, commissions, income, or net earnings (also capped at $100,000 per year, per employee)
• Interest on mortgages: Obligations must be incurred before Feb. 15, 2020
• Rent: Lease agreement must have been effective prior to Feb. 15, 2020
• Utilities: Service must have begun before Feb. 15, 2020

Will I Have to Pay Back Some of the Loan?

Maybe. The idea behind the PPP loan for small businesses is to help people stay employed and keep firms from going out of business. As such, you will be required to prove you spent 75% of the PPP loan proceeds on payroll-related expenditures.

If you spent any of the loan on things determined to be ineligible for forgiveness, you may be required to pay those amounts back.

For example, if your PPP loan is for $250,000, your documentation and reporting must show that you spent $187,500 (75%) of your PPP funds on payroll-related expenses. The remaining amount of the loan, $62,500 (25%), must be spent on other eligible expenses as defined by the CARES Act. If your lender determines, based on your forgiveness application and documentation, that $80,000 of your PPP funds were spent on non-payroll expenditures, you may be required to pay back $17,500 ($80,000 – $62,500 = $17,500) of the loan.

Interest accrues on the PPP loan from the first day at 1% annual percentage rate (APR). You will not be required to make any payments on the loan until six months after you receive your disbursement. If a portion of the loan is forgiven, but you are required to pay some of it back, only the interest accrued in relation to the forgiven amount will be waived. You will still be responsible for the interest accrued on the amount of the loan that must be repaid.

Where to Find More PPP Information

A good place to start is with the Paycheck Protection Program Ultimate Guide curated by our experts here at Fit Small Business. It includes everything you need to know about the PPP in easily digestible language. The guide also has a calculator tool you can use to determine how much you can borrow under the PPP guidelines.

The United States Treasury Department has released an Information Sheet for consumers with summarized information in the form of questions and answers. The information sheet includes details on loan amounts, eligible expenses, and how to apply.

Check with your accounting software vendor to see if they have any guidance on expense tracking. For example, QuickBooks released an article for their clients with tips and hints to help you toward PPP loan forgiveness.

The Small Business Administration (SBA) is always a good source for up-to-date information on the PPP and other programs for small businesses. Visit the SBA’s main website or its page specific to the Paycheck Protection Program where you can find eligible lenders, information on applying for the loan, and other assistance.

Bottom Line

When it comes to your Paycheck Protection Program loan being forgiven, it will all come down to the details. If you don’t track your spending well or at all, your loan may not be forgiven. However, if you have tracked your eligible spending carefully and can provide backup documentation, you may not have to repay any of the loan.