What Can I Use My PPP Loan For?

The Paycheck Protection Program (PPP) loan is a government-backed loan that can be used to help small businesses keep their employees on the payroll during the coronavirus pandemic.

If you’re a small business owner considering a PPP loan, you may be wondering what exactly you can use the loan for. In this blog post, we’ll cover some of the most common uses for PPP loan funds.

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Overview of PPP Loan

The PPP loan is a government-backed loan that is meant to help small businesses keep their workers employed during the COVID-19 pandemic. The loan can be used for a variety of purposes, including payroll, rent, utilities, and mortgage interest.

What is a PPP Loan?

A PPP loan is a loan through the Small Business Administration’s Paycheck Protection Program. The Paycheck Protection Program is a government-backed loan program that provides small businesses with funds to cover payroll and other expenses.

PPP loans are 100% guaranteed by the government, and they can be used for a variety of purposes, including payroll, rent, utilities, and mortgage interest. PPP loans are typically available for up to two years, with an interest rate of 4%.

The Paycheck Protection Program is a part of the CARES Act, which was signed into law in March 2020 in response to the COVID-19 pandemic.

How Much Can I Borrow?

The amount you can borrow is determined by your business’ average monthly payroll expenses during the one-year period prior to when you apply for the loan. You can borrow 2.5 times your average monthly payroll expenses, up to a maximum loan of $10 million.
For example, if your business’s average monthly payroll expenses during the one-year period prior to when you applied for the loan were $100,000 per month, you could qualify for a loan of up to $250,000.

How Do I Apply?

You can apply for a Paycheck Protection Program loan through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other lenders may also choose to participate in the program.

You should consult with your local lender as to whether it is participating in the program. For a list of SBA-recognized lenders, click here.

To find out which lenders near you are participating, you can visit the SBA’s website here or call 1-800-659-2955 (the SBA’s Customer Service Center).

Eligible Uses of PPP Loan

The Paycheck Protection Program (PPP) provides loan forgiveness for retaining employees by temporarily expanding the traditional SBA 7(a) loan program. Loans may be used for payroll costs, interest on mortgages, rent, and utilities.

Payroll Costs

One of the most important restrictions on how you can use your PPP loan is that at least 60% of the loan must be used for “payroll costs.” Payroll costs are defined in the CARES Act and clarified by the SBA as:

-Salaries, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
-Employee benefits including vacation, parental, family, medical or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
-State and local taxes assessed on compensation; and
-For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment (capped at $100,000 on an annualized basis for each employee).

Employee Salaries and Benefits

One of the key eligible uses of PPP loan funds is to cover employee salaries and benefits. This can include items such as:
-Wages
-Salaries
-Vacation pay
-Sick leave pay
-Health insurance premiums
-Retirement benefits contributions

Rent or Mortgage Interest

You can use your PPP loan for rent or mortgage interest on a business property, including real estate, office space, or equipment rentals. This also includes any prepaid rent payments you may have made before receiving the PPP loan.

Utilities

Your PPP loan can be used to cover various utilities expenses, including:
-Electricity
-Gas
-Water
-Sewerage
-Telephone (including landline, cell phone, and internet service)
-Internet service

Ineligible Uses of PPP Loan

Personal Expenditures

You cannot use your PPP loan for personal expenditures such as:
-rent
-mortgage
-utilities
-groceries
-clothing
-entertainment
-vacations

Business Expansion

One common question we’ve received is whether PPP funds can be used for business expansion, such as opening a new location or expanding your product line. Unfortunately, the answer is no – PPP loans must be used for “payroll costs,” which are defined as follows:

-Salaries (including vacation, parental, family, medical, and sick leave)
-Wages
-Commission
-Payment of benefits (health insurance premiums and retirement contributions)
-State and local taxes assessed on payroll
-Payments of interest on any mortgage obligation imposed in connection with real or personal property
-Rent (including under a lease agreement)
-Utilities

Stock Dividends

Dividends from stocks (including mutual funds) do not count as payroll for the purpose of the PPP loan. That means that any dividends paid out to shareholders, including yourself if you are the sole proprietor of your business, cannot be included in your eligible payroll expenses.

How to Spend Your PPP Loan

If you’re a small business owner who has been impacted by the coronavirus pandemic, you may be wondering how you can spend your PPP loan. The good news is that there are a number of ways you can use the loan to help your business. In this article, we’ll go over some of the ways you can use your PPP loan.

Prioritize Your List of Expenses

Once you have your loan in hand, it’s time to start prioritizing your list of expenses. The first step is to create a list of all the expenses you anticipate incurring over the next 8-12 weeks. This list should include both fixed and variable expenses.

Fixed expenses are those that stay the same each month, such as rent or mortgage payments, insurance premiums, and minimum loan payments. Variable expenses are those that fluctuate from month to month, such as utility bills, groceries, and child care.

Once you have a complete list of all your anticipated expenses, it’s time to start prioritizing. The most important thing to remember is that your PPP loan must be used for eligible expenses in order to be forgiven. So, while it may be tempting to use the loan proceeds to cover non-essential expenses like vacations or luxury items, doing so could jeopardize your loan forgiveness.

To make sure you prioritize correctly, start by dividing your list of expenses into two categories: essential and non-essential. Essential expenses are those that are absolutely necessary for you to continue operating your business, such as rent or mortgage payments and employee salaries. Non-essential expenses are those that can be put off for a period of time, such as advertising or office renovations.

Once you’ve categorized your expenses, prioritize the essential items on your list in order of importance. For example, if you’re facing a choice between using your PPP loan proceeds to pay rent or make a mortgage payment, paying rent should be your top priority since it is essential for continuing to operate your business.

Keep in mind that while some expense items may be more essential than others, all eligible expenses can be used towards loan forgiveness. So even if an expense item is less essential than others on your list, it can still contribute towards loan forgiveness if you use at least 60% of your loan proceeds for payroll costs.

Keep Detailed Records

Keep detailed records of how you spend your PPP loan. This includesItemized list of expenses

-Description of how the expense relates to your business
-Date of incurrence
-Amount of expense

You will need to submit these records to your lender when you apply for loan forgiveness.

Understand the Forgiveness Process

The Paycheck Protection Program (PPP) loan forgiveness process can be confusing and time-consuming, but it’s important to understand how it works so you can maximize your loan forgiveness.

The first step is to submit your loan forgiveness application to your lender. You’ll need to include documentation supporting your eligible expenses, such as payroll records or rent invoices.

Once your application is received, your lender has 90 days to review and approve it. If they have any questions, they will reach out to you during this timeframe.

If your application is approved, you will receive loan forgiveness for the eligible expenses that you incurred during the covered period. If any of the expenses are not eligible for forgiveness, you will be responsible for repaying those costs.

You may be required to make payments on any remaining balance of your loan if:
– Your application is denied
– You do not submit an application by the deadline
– You do not use at least 60% of the loan proceeds for payroll expenses