If your small businesses managed to secure a Paycheck Protection Program (PPP) loan before the well ran dry, your next task is figuring out how to use it. Here’s a list of the expenses that qualify for forgiveness (meaning you don’t have to pay the loan back).

Remember, your lender will perform an audit at the end of the 8-week forgiveness period to see how you spent the loan. Be sure to keep the relevant paperwork we list under each section, so you can sail through the audit.

Salaries & Wages

A minimum of 75% of your PPP loan must go to compensating your employees, excluding those who earn more than $100,000 per year. We are still waiting for guidance from the Small Business Administration on salaries over $100,000 and business owner/family salaries.

For the audit: Payroll processing reports, tax reports or other reports such as paid time off (vacation or sick leave).

Healthcare Benefits

This is for paying any premiums due on the company’s group health insurance plan. Company owners and family are included if they’re on the group plan. However, it appears that payments to the owner’s individual policy or Health Savings Account contributions do not qualify for PPP loan forgiveness.

For the audit: Insurance invoice(s) and proof of payment.

Retirement Plan Contributions

If you offer your employees a Defined Benefit Plan, Defined Contribution Plan or SEP IRA, you can use some of your PPP loan to continue funding that plan. There’s no specific guidance about benefits paid to the owner or owner’s family, but we doubt that it would be forgiven.

For the audit: Retirement plan statements, funding schedules and proof of remittances.

Non-Payroll Expenses

Operating expenses that don’t directly benefit employees — a few of which we’ll list below — can’t total more than 25% of the loan. If you go over that percentage, you’ll have to pay back any excess amounts.

 

Rent

To be forgiven, the expense must be both incurred and paid during the 8-week loan period. Any rent that was already due before the date of the loan doesn’t qualify. Also, the lease must have been signed before February 15, 2020.

For the audit: Signed lease contract, proof of rent payment (canceled check, ACH, bank statement or wire).

Utilities

This covers electricity, gas, water, phone, internet, etc. It’s not clear what the SBA means by “etc.” Service contract agreements must have been in effect before February 15, 2020.

For the audit: Proof of payment for each utility.

Interest on Business Loans

You may use some of your PPP loan to pay the interest on your business mortgage, practice acquisition loan, build-out loan or any loan secured by business personal property. The mortgage/loan must have been in effect before February 15, 2020.

For the audit: Bank statement or loan invoice showing principal and interest, plus proof of payment. You may wish to pay principal and interest separately during the 8-week PPP loan period so there’s no question in the auditor’s mind.

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