Nonprofit PPP Loan Considerations

May 13, 2020

Nonprofit PPP Loan Considerations

A key component of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Payroll Protection Program (PPP) includes qualifying tax-exempt organizations described in sections 501(c)(3) and 501(c)(19) of the Internal Revenue Code.  Now that many of these organizations have been approved and received funding through the PPP,  the focus moves to maximizing loan forgiveness. 

Maximizing Nonprofit PPP Loan Forgiveness
PPP loan proceeds may be used for payroll costs, rent, utilities, and mortgage interest during the 8-week period following the loan funding.  At least 75% of PPP proceeds must be directed towards payroll costs and 25% may be directed towards non-payroll expenses.  While the loan has an attractive 1% interest rate with a two-year maturity date, forgiveness is the preferred option.

To qualify for forgiveness, organizations must meet the 75-25% threshold and ONE of two key criteria:

  1. Maintain normal employment levels or;
  2. Meet the safe harbor requirement, returning to full employment levels by June 30, 2020.

The SBA recently updated the program FAQ (Link) to clarify that loan forgiveness will not be reduced for organizations that make, and appropriately document, good faith efforts to rehire employees at prior employment levels.

In addition to meeting the employment level requirements, documentation of the appropriate use of funds is key to loan forgiveness. It is imperative that you maintain supporting documentation for all qualifying expenses. 

Consider the following action items:

  • Setting up appropriate classifications in your general ledger to isolate and track the PPP loan activity.
  • Maintaining support for each transaction including reports from your payroll provider, payroll tax filings, and documents verifying your eligible retirement and health insurance contributions, eligible interest, rent, and utility payments provide detail of your qualifying expenses (ex. invoices, receipts, canceled checks, account statements, etc.)

Uniform Guidance and Other Funding Considerations
The SBA also recently issued guidance that PPP loan funding does not represent federal financial assistance under the Uniform Guidance and will NOT be subject to Single Audit requirements.  It is also important to remember that if you are receiving other funding such as federal, state, or local dollars, you cannot double dip – so you must adequately track program activity so that expenses are only allocated to one program.  Take care to ensure you spend your normal funding in accordance with the related program and budget guidelines. 

The key takeaway for nonprofits (and all organizations) receiving PPP loans is to track and maintain appropriate supporting documentation. This will allow for as much forgiveness as possible while maintaining adequate documentation for any potential audits of the funding in the future.

For additional information contact the author at Article contributed by Marybeth C. Olree, CPA.


Coronavirus Resource Center: Have more questions about the impact of COVID-19 on your business? Visit Herbein's Resource Center for up-to-date information.