Required Documentation for PPP Loan Forgiveness

Posted on May 7, 2020

By Scott Zickefoose, CPA, CM&AA, Transaction Advisory and Tax Senior Manager

What You Should Know About the Required Documentation for Paycheck Protection Program (PPP) Loan Forgiveness

Section 1106(e) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides loan borrowers limited guidance on the required documentation as part of the borrower’s application for Paycheck Protection Program (PPP) loan forgiveness. Our team compiled best practices for documenting allowable uses of Paycheck Protection Program loan proceeds during the eight week period (“cover[ed] period”) following the first disbursement of funds.

“Paycheck Protection Program: Documentation Best Practices for Borrowers” Excerpt:

Should I establish a separate bank account for the loan proceeds?

The Act does not require segregation of funds, but, out of an abundance of caution, many borrowers are establishing a segregated account and only paying allowable expenses with this newly established account.  If doing so does not cause disruption to the business, opening a separate account may allow for easier record keeping and facilitate the loan forgiveness process.

Which method of accounting should I use to report expenses? Cash-bases or accrual-basis?

When read literally, the Act indicates that only allowable costs incurred AND paid during the covered period will qualify for purposes of determining loan forgiveness. If Treasury’s interpretation of this statute is conservative, this will eliminate the ability to prepay expenses or pay past-due expenses and have these expenditures qualify as allowable uses. Until Treasury releases further guidance, it is advisable to maintain documentation on all invoices that are paid in the covered period (even if the invoice relates to expenses incurred prior to the covered period). Depending on Treasury’s ultimate guidance on method of accounting for allowable uses, there may be a need for a short period (off cycle) payroll at the end of the covered period to maximize the loan forgiveness benefits.