Guide to Using Your PPP Loan

Home - Small Business Finance - Guide to Using Your PPP Loan

Guide to Using Your PPP Loan

Guide to Using Your PPP Loan

Back from February 24 through March 9, 2021, businesses that had fewer than 20 employees could apply for their PPP (Paycheck Protection Program) loans. This move was an attempt to offer companies easier access when they struggled to get PPP loans. On top of that, second PPP loans were offered for businesses that showed a 25 percent (or more) reduction in gross receipts throughout the years.
This guide to using your PPP loan goes through all of the features and options you have available.

How to Use Your PPP Loan

Small companies throughout the country have received their funding from the PPP (Paycheck Protection Program) to help offset the coronavirus pandemic. When round two of the program ran out, the government guaranteed more than $650 billion in loans for impacted businesses.
The demand for the PPP loan is a result of emergency financing needs, and many companies sought them out because they’re forgivable if they’re used to pay for mortgage payments, utilities, rent, and payroll.
Since many small businesses were approved for such loans, their focus can turn to handling their financial responsibilities. However, there were various unclear rules from the SBA (Small Business Association), which led to confusion on how to use your PPP loan proceeds, when to repay them, and what expenses are forgiven.

Before You Get Your PPP Loan

While you can’t apply for one now, you may still be waiting for yours to arrive. If so, use this time to determine how you’re going to track and use the loan for your expenses.

Make a Plan to Use Your PPP Loan

You are allowed to use the loan proceeds for everyday expenses, such as mortgage interest on the business property, utilities, rent, and payroll. According to the CARES Act, all of those expenses are going to be forgiven by the government.
There are a few other “eligible” ways to use your PPP loan, but they aren’t forgiven. These can include making insurance premium payments and payments on any debt accrued before February 15, 2020.
It is essential to document every penny spent from the PPP loan so that you have proof when you apply for loan forgiveness. Therefore, it’s best to prepare now for how you’re going to use the money. Steps to take include:

1. Create a Business Plan Solely for PPP Funds.

With so little guidance available, business owners should follow the CARES Act rules, so 75 percent of the loan has to go toward payroll. The rest can be spent on mortgage interest, utilities, and rent to get full loan forgiveness.
Therefore, businesses that use the loan for other needs, such as payroll before the covered period, may be considered fraudulent. It’s a good idea to have a business plan specifically for the loan in case you’re audited. It should cover:

  • How the crisis hurt your business
  • Steps taken to increase revenue and cut costs
  • How you plan to use the PPP funds

That way, you have an outline of where you were at the moment if questions come up about taking out the PPP loan to survive. It’s a good idea to document any profit/loss statements, invoice schedules, balance sheets, and everything else during this time.

2. Open Another Bank Account.

You don’t need to comingle any existing funds with the PPP proceeds. The loan isn’t taxable, so it could lead to confusion if you add them to what you already have. Consider opening up a separate business checking account. Use that to make any eligible payments to make it easier to review PPP-related spending.

3. Use Payroll Services or Accounting Software.

It’s a challenge to manually manage your spending, especially when it comes to payroll. Plus, it’s easier to accidentally mismanage the PPP funds.
Consider third-party payroll services to automatically debit that new account. Some providers now offer PPP-specific reports to help with loan forgiveness applications.
Accounting software can also be helpful with everyday spending and PPP funds. Get all of that set up before your money rolls in.

After You Receive the PPP Loan

When your loan hits the bank account, you have to spend the proceeds for the covered period, which is eight weeks after the loan distribution to get loan forgiveness.
Whether you’re planning on full or partial forgiveness, track the things listed below during the covered period. That way, you know how much money the SBA is going to convert into a grant and how much you’ve got to repay (you have two years to do that).

Track All Expenses Related to the PPP Loan

From your accounting software or payroll provider, record all financial transactions you make with PPP funding, even if they aren’t forgivable. You should note the:

  • Amount of the expense
  • Vendor you paid
  • Category for the expense
  • Purpose of the transaction
  • Date of the transaction

Keep office records of these transactions, whether it’s a receipt or a payroll stub. If possible, add “PPP” to the memo section of your checks.

Document Payroll

The government’s goal with the PPP is to ensure that small business employees continue working. You may have applied for the funding only because of the urgency, so you may not be ready to hire or pay the staff. Regardless, keep track of how many full-time employees you have and their wages. Even if you’ve only got a small portion of the employees, that part of the loan converts to the grant.

What to Do After Using the PPP Loan

When you’ve used up the PPP loan, consider these steps:

  • Apply for Loan Forgiveness

Each lender is likely to have their own way of applying for loan forgiveness. There’s no official guidance about this yet. Therefore, make sure you stay in touch with the lender and find out what documentation you must provide and when.

  • Make a Plan to Repay the Rest

The PPP loan is a loan, and it only gets converted to a grant if you use it as described earlier. While the terms are generous with a 1 percent interest rate, six-month deferment, and repayment terms of two years, you’ve got to be prepared.


This guide to using your PPP loan can help you get everything in order for when the money arrives. Learning how to use your PPP loan the right way can save you money and hassles.
If you have not started the process yet GoKapital can help you, call us at 1-866-257-2973 or apply online.