Frequently Asked Questions for Paycheck Protection Loan Recipients

If our organization borrowed a Paycheck Protection Program (PPP) loan, what documentation should we maintain in our file regarding the loan application and the basis for determining our organization’s eligibility? What steps should our organization take now to prepare to apply for loan forgiveness?

What are some of the loan application records which the SBA requires PPP borrowers to maintain?
Updated November 5, 2020.
As a general rule, according to page 10 of the SBA Form 3508 Loan Forgiveness Application, a PPP borrower should maintain copies of: (1) the loan application, (2) the detailed summary of the amounts claimed; (3) source documents used to make the calculations for the loan amount; and (4) source documents to demonstrate that the organization had employees on February 15, 2020 and that eligible non payroll obligations and services were in place prior to February 15, 2020. The document retention requirements are very similar for each version of the SBA Form 3508. For the SBA Form 3508EZ and3508S, the borrower must also retain documentation for its certifications of eligibility to use the form. For the full SBA Form 3508, the borrower must retain additional documentation related to the statements made in the ScheduleA Worksheet. For example, the loan application requires the applicant to state its average monthly payroll during the twelve-month period prior to the loan. The PPP borrower should maintain copies of its calculation of the average monthly payroll amount. The PPP borrower should also maintain copies of direct deposits, check numbers, IRS Form 941, and other payroll records demonstrating the figures used to calculate the “average monthly payroll” amount. Other loan application-related documents that a PPP borrower should retain in its file include:
  • A signed board resolution (or meeting minutes) approving the loan application and acceptance of the Paycheck Protection loan funds;
  • Written authorization of the individual who submitted the loan application on behalf of the organization (in many cases, this could be based on a delegation of authority to a particular officer in the resolution that approved the loan application; for some individuals, this may be a reference to the individual’s job description as set forth in employment documents or the bylaws (See Question 11 of the SBA PPP Loan FAQ );
  • Written documentation of the basis for the organization’s determination that “economic uncertainty” made the loan necessary (this could include factors such as local shutdown orders, decreasing revenues, financial market instability, and rising infection statistics in relevant geographies);
  • Written confirmation that nonpayroll expenses were in place prior to February 15, 2020;
  • Written confirmation that the board or an appropriate corporate officer received copies of and reviewed the final loan agreement.
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How does the SBA recommend PPP borrowers track expenditures of loan funds?
Updated June 8, 2020
According to page 10 of the SBA Form 3508 Loan Forgiveness Application, during the period when the loan is outstanding, a PPP borrower should carefully document the expenses for which the loan funds are used and should maintain these documents for six years after the loan is repaid or loan forgiveness is received. This documentation is important both to: (1) support the organization’s application for loan forgiveness, and (2) demonstrate that all loan funds were applied for Covered Expenses. If the organization maintains its records properly, by the end of the EligibleExpense Covered Period, most or all the documentation necessary for the loan forgiveness application should already be consolidated.  Some examples of best practices for loan documentation include:
  • Segregate the PPP loan funds in a separate bank account, rather than mingling them with the organization’s existing funds and pay Covered Expenses directly from the segregated account holding the loan funds;
  • Create a spreadsheet to track Covered Expenses for each day during the Eligible Expense Covered Period (or Alternative Payroll Covered Period, as applicable), both on an accrual basis and a cash basis, making sure that at least 60% of the loan funds are used for payroll costs, as required by current SBA guidance (See Question 2(o) of SBA Interim Final Rule 1);
  • Track each type of payroll cost (cash compensation, health insurance, retirement payments, and state and local taxes assessed on employee compensation) separately according to the type of cost. Further separate the subcategory of cash compensation by employee (each employee would have a row under the category “cash compensation” in an expense tracker);
  • Create a database or file consolidating source documents;
  • Assign responsibility for maintaining the Covered Expense tracker to a specific individual and ensure that the individual has appropriate training and necessary technology/materials; and
  • If the organization’s workforce was reduced, maintain documentation for any of the applicable exceptions and safe harbors set forth in the PPP Loan Forgiveness Application: Schedule A Worksheet, including documentation of voluntary resignation, termination for cause, or voluntary request for reduced hours, and, for employees laid off due to the pandemic, a written offer of rehire and, if the employee declines the offer, a written statement from the employee to that effect.
Based on SBA guidance, are there any new procedures the organization should implement during the term of the loan?
Updated June 8, 2020
The SBA has announced that loans of more than $2 million will be reviewed, and all loans will be subject to review, at the discretion of the SBA (see question 39 and 46 of FAQ). Loans of less than $2 million will be deemed to have been necessary but remain subject to review. Accordingly, regardless of the loan size, the organization should comply with applicable obligations and document such compliance.  On the PPP loan application, borrowers must make certifications regarding the accuracy of the statements in the application, as well as commit to certain conduct during the period of the loan (see SBA Form 2483: PPP Loan Application, Page 2, and Interim Final Rule 1, Question 2(t)).   PPP borrowers should establish protocol for compliance and identify a staff member to oversee compliance with each requirement. For example, the organization may temporarily establish a written policy to prioritize the purchase of American-made products. The organization should also implement a procedure to buy American-made when possible and document the business reason when foreign-origin products are purchased instead.   PPP borrowers should also review applicable federal nondiscrimination requirements. Question 1 of the SBA final rule on nondiscrimination states that, for nonprofit fund recipients, compliance with the nonprofit organization’s existing federal nondiscrimination obligations will be deemed compliance with SBA nondiscrimination requirements during the loan period. The SBA rule also states that religious entities retain independence regarding its membership and employment of individuals to carry out the nonprofit’s religious work.4 Organizations should carefully review applicable federal nondiscrimination requirements and the organization’s implementing policies and procedures, as this is an important dimension of PPP loan compliance.  
Based on available guidance, what are other considerations and best practices for PPP borrowers during the period of the loan?
Updated June 8, 2020
PPP borrowers should: (1) keep up with new guidance at treasury.gov; (2) confirm and reinforce the organization’s religious identity for legal purposes; and (3) communicate with the board regarding the use of the loan funds.  In addition to tracking expenditures and implementing procedures to comply with the loan certifications and SBA regulations, PPP borrowers should also keep up with new SBA guidance. Because the PPP was implemented very rapidly, the SBA and Department of Treasury have been issuing clarifying guidance on a rolling basis to address problems and clear up confusion. For example, the PPP FAQ document is updated several times each week. To keep key leaders up to date, the organization should designate an individual responsible for tracking updates to the administration of the loan programs.  Organizations also should review their corporate documents, employee handbook, and other documentation to evaluate whether the organization’s religious identity is clearly articulated and to take any necessary steps to update those documents as appropriate. Our friends at ADF have compiled a helpful religious liberty checklist that organizations can use to self-assess the extent to which they are following best practices for religious organizations.  Finally, during the loan period, the board should be updated regularly on the use of the loan funds and relevant updates. This could be done through a meeting or via email summaries. As always, if a meeting is held, written minutes should be developed and kept in the corporate records.  
What public relations efforts should a PPP loan recipient consider?
Updated July 7, 2020
An organization’s receipt of funds through the PPP may not remain private; in fact, the SBA recently listed a list of PPP loan recipients. Some media sources may unfavorably characterize the organization’s receipt of funds. Additionally, many grant applications require prospective applicants to disclose whether they receive government funding, which may include loan forgiveness under the PPP.   Accordingly, the organization’s leadership should develop a public relations plan in anticipation of the receipt of PPP funds becoming public.  An effective communication plan includes the following elements:
  • Who: The organization’s leadership should identify key stakeholders who should receive communications about the loans. These stakeholders may include employees, donors, volunteers, program participants and their families, the media, and the public. Additionally, leaders should designate a point of contact to handle media and other public inquiries about the loans. If more than one individual will be communicating with media, the team should meet to discuss the organization’s message and ensure consistency in all statements and responses.  
  • What: The organization’s leadership should:  Develop a public statement regarding its receipt of funds and any details the organization wishes to share with the public. Build a list of expected media and stakeholder questions and prepare answers.  Stay up to date on news coverage of this topic to determine when and the organization should issue statements.  
  • When: A best practice in communications is to take initiative when communicating. Organizations should consider proactively issuing a message regarding PPP loans before media outlets begin reporting on the subject.  
  • Where: The organization can consider posting a brief statement on its website, in an e-newsletter, or in other regular communications with its stakeholders.  
  • Why: The organization should use any attention it receives as a positive opportunity to share and advocate for its mission.  
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How should a PPP recipient prepare to submit the loan forgiveness application?
Updated June 8, 2020
The SBA recently released the loan forgiveness application form and related instructions. The organization’s leaders should review the application as soon as possible, to anticipate the information that will be needed.  In addition to preparing the substance of the loan forgiveness application, the organization’s leaders should also address key logistics matters related to preparing the application.  For example, the organization should:   
  • Identify. Decide which individuals will review the loan forgiveness application prior to its submission.
  • Notice. Provide notice to these individuals so they can prepare to be available at the appropriate time.   For example, if the organization plans to submit the application at the end of July and wishes the Chief Financial Officer, the Executive Director, and a third-party accountant to review the forgiveness application, the organization may wish to schedule the review meeting in advance to avoid a last minute “fire-drill” when the time for submission arises.
  • Schedule. Identify the date or approximate deadlines by which the organization should submit the forgiveness application, as well as the target dates for preparing the application and sending it to key leaders or professionals for review.  
What are steps an organization can take to prepare for an SBA loan review?
Updated June 8, 2020
The SBA has stated that it will review all loans of more than $2 million and will concentrate on these larger loans. However, the SBA further stated that all loans can be reviewed at the discretion of the SBA. While the SBA may be unlikely to review smaller loans to religious or other tax-exempt organizations, nonprofit executives should still be aware of the possibility of a review.  Leaders should prepare the organization to respond to an inquiry professionally, efficiently, and without undue stress. How much or little preparation for a potential review is appropriate will vary depending on the organization.  A rule of thumb is to prepare for a review the way an organization would prepare for an IRS audit – maintain reports, summaries of information submitted on reports, and source documents for all information used in the loan and loan forgiveness application statements and calculations.  
  • Communication. The organization should create a plan for how staff will respond if the SBA does perform a review.  
  • Preparation for Document Requests. The organization should also develop a workflow for responding to document requests from the agency investigators.  
  • Identifying Counsel. The organization should identify potential professionals to whom the organization can turn for legal and accounting expertise if necessary.  
  • Internal Governance  The organization should use this opportunity to strengthen its operations and evaluate its internal governance processes. The IRS has published a helpful assessment tool for 501(c)(3) organizations, which can be used to identify areas for improvement.