Apr 30, 2020
Manage Your SBA Paycheck Protection Program Loan Wisely
To learn how to prepare for the anticipated third round of the Paycheck Protection Program, read our guide here.
Did your bank accept your application for a Paycheck Protection Program loan? Has your lender forwarded all the documentation to the Small Business Administration on your behalf? In the event your application is approved before funds run dry, you’ll want to make sure you follow all the rules to make the best of this financial situation.
The Regional Hispanic Contractors Association (RHCA) webinar held April 24, on “How to Prepare for the Next Paycheck Protection Program,” shared valuable insight for contractors. Specifically, Miguel Reyna, the owner of Reyna CPAs in Dallas, shared some specific tips to help contractors avoid costly mistakes.
Make a Separate Account
The first and most important advice experts participating in the webinar offered was for contractors to open a separate account into which PPP loan money can be deposited. Keep this money separate from all other company revenue to make it easier to manage and track.
Begin Tracking Immediately
When the SBA deposits the loan money into your account, the clock starts ticking. Eight weeks later, you will be expected to give a thorough accounting of how each and every dollar has been spent. “An accounting of this money is due in 45 days,” Reyna said. That doesn’t mean any money is due “back” to the SBA. In fact, as you’ve probably heard, if you use the loan properly, none of it has to be repaid. If, on the other hand, you have mis-managed the loan, you will be expected to repay the loan.
Use Your Loan Properly
As the loan’s name implies, it is to be used for employee paychecks—and this can include the company owner if he or she receives a W-2, according to Reyna.
Seventy-five percent of the PPP loan money deposited into your account must go to payroll. The remaining 25 percent can also go to payroll, or can go to rent payments for the business or toward interest on mortgage payments for the business.
If you are able to prove that you are using the money in this proper and approved breakdown, you do NOT have to pay it back. You will owe no interest on it. In fact, you won’t get taxed on it, Reyna announced. He called that a win-win.
Are you ready for the big win? If you are able to use the 25 percent portion toward interest on mortgage payments for the business, those dollars are tax deductible.
Of course, all of this hinges on proper and excellent record-keeping. If you are unable to prove that you have followed the rules, the monies you can’t account for will have to be paid back. Check out SBA.gov for more information. AsphaltPro Magazine thanks the RHCA for sharing the webinar April 24.