Paycheck Protection Program: Documentation Best Practices for Borrowers

By Scott Zickefoose, CPA, CM&AA, Transaction Advisory & Tax Partner

Paycheck Protection Program: Documentation Best Practices for Borrowers


By Scott Zickefoose, CPA, CM&AA, Tax Senior Manager

PPP Loan Forgiveness Guidelines

Note: Learn more about the new deadline for Paycheck Protection Program loan qualification and repayment.

Our team is closely monitoring the developments of the COVID-19 pandemic and are working to keep you informed of the implications to you and your business. We have dedicated teams and resources to focus on all aspects of the CARES Act so that we can provide you with meaningful guidance and concise information.

If you have questions about how these changes impact your business, please contact your Keiter advisor. We are here to listen and provide sound advice.

Has Your Business Received a PPP Loan?

Best practices for documenting allowable uses of PPP loan proceeds

Section 1106(e) of the CARES Act gives borrowers limited guidance on the documentation required as part of the borrower’s application for Paycheck Protection Program (PPP) loan forgiveness. Using the information available as of April 24, 2020, Keiter Advisors, our full-service transaction advisory group, has compiled the following best practices for documenting allowable uses of loan proceeds during the eight week period (“cover[ed] period”) following the first disbursement of funds.

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-basis 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.

What documentation should I maintain to substantiate loan forgiveness?

Payroll costs
  • Copies of all internal payroll reports for payrolls that fall within the covered period.
  • Schedule identifying payments made to individuals in excess of $15,385 during the covered period.
  • Once available, the second quarter Form 941s, state unemployment tax filings, and any other regulatory filing made that would support both the number of employees on payroll and/or their payroll figures.
  • Copies of invoices and/or supporting documentation for payments related to benefits included in “payroll costs”, such as qualified retirement plan contributions and health insurance premiums paid.
  • Documentation pertaining to claims for reimbursement under the Family’s First Coronavirus Response Act (FFCRA).
  • Copy of lease agreement(s) indicating the leasing agreement was in force before February 15, 2020, (CARES Act §1106(b)(3) )
    • Additional guidance is necessary for leases entered into (or renegotiated) after February 15, 2020, in the ordinary course of business.
  • Copies of cancelled checks or bank statements supporting the rent payments included in the borrower’s forgiveness calculation.
Mortgage interest
  • Support for mortgage origination prior to February 15, 2020
  • Copies of statements supporting payment of mortgage obligation.
  • For purposes of allowable uses, the Act defines utilities as electricity, gas, internet, transportation, telephone, or water for which services began prior to February 15, 2020.
  • Documentation supporting services began prior to February 15, 2020 for each type of utility claimed as an allowable use in the forgiveness calculation.
  • Copies of invoices, cancelled checks, and any other support to indicate when expense was incurred and how the expense was paid.

What documentation do I need to support my full time equivalent employee (FTEE) calculation?

Although the measurement periods are known for calculating the borrower’s FTEEs, the exact method of calculation has not been discussed by Treasury. The Paycheck Protection Program section of the CARES Act does not specifically define a methodology for determining FTEEs. Elsewhere in the CARES Act (Section 2301(c)(3)), a full time employee is defined as one that averages at least 30 hours per week and a FTEE is defined by referencing Internal Revenue Code Section 4980H. This specific code section defines full-time equivalent employee by adding the hours of part-time employees on a monthly basis and dividing by 120.  Until definitive guidance is received, we advise clients to use this standard when evaluating FTEE counts during the covered period. Additionally, we would advise gathering the documents necessary to perform the historical analysis (payroll information for the two potential measurement periods).

Maintaining documentation to support the Company’s use of the loan proceeds and subsequent request for forgiveness is imperative as loan forgiveness can only be achieved by submitted requisite documentation to the servicing lender. Paycheck Protection Program loan and loan forgiveness guidance has been issued intermittently on an item by item basis. As additional guidance and regulations are made available, we will update the information contained within this document.

Questions? Contact Us. Email | Call: 804.747.0000.

Disclaimer:  This content has been prepared for general guidance and informational purposes only based on the date published.
The FFCRA, CARES Act, and SBA Paycheck Protection Program (PPP) are continually releasing new guidance that may change the information provided within this content. Keiter recommends that you perform your own independent research and/or speak with a qualified accounting professional before making any financial business decisions. © 2021 Keiter, All Rights Reserved.

Additional Resources

COVID-19 Business Resource Library

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About the Author

Scott Zickefoose

Scott Zickefoose, CPA, CM&AA, Transaction Advisory & Tax Partner

Scott works closely with his clients to identify tax planning and savings opportunities.

Scott is a member of Keiter’s Emerging and Growth Business team, where he consults with early stage business owners on relevant financial and tax matters, and is a member of the Merger and Acquisition team, where he specializes in providing sell-side and buy-side quality of earnings services. He is also a member of Keiter Advisors, Keiter’s full-service transaction advisory group serving lower middle market companies and their owners.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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