PPP Loan Documentation Requirements
CARES Act Update:
Documentation Requirements for a PPP Loan
Written by Paul M. Polito, CPA
The documentation requirements for the PPP loan are twofold:
- Documents that must be submitted to the bank with the application.
- Documents that must be retained by the borrower.
All documentation must be retained by the borrower for a period of 6 years after the date that the loan is forgiven or repaid in full.
1. Documents that must accompany the application:
- Bank account statements or third-party payroll service provider reports documenting cash compensation.
- Tax forms or equivalent third-party payroll service provider reports for the payroll periods that overlap with the Covered Period or Alternative covered period:
- Payroll tax filings (form 941) and State filings for payrolls
- Payment receipts, cancelled checks or account statements documenting any employer contributions to employee health insurance and retirement plans that were included in the forgiveness amount.
For FTE’s (documentation showing at the election of the borrower):
- Average number of FTE employees on payroll per month between 2-15-19 and 6-30-19; OR,
- The average number of FTE employees on payroll per month employed by the borrower between 1-1-2020 and 2-19-2020 OR,
- For seasonal employers the average number of FTE employees on payroll per month between 2-15-19 and 6-30-19; between 1-1-2020 and 2-29-2020 or any consecutive 12-week period between 5-1-19 and 9-15-19.
Non-payroll: Documentation verifying existence of the obligation or contract prior to 2-15-2020
For interest on secured debts: copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments during the covered period or lender account statements from February 2020 through one month after the covered period.
Business rent or lease payments: copy of current lease agreement and receipts or cancelled checks verifying payment during the covered period or account statements from February 2020 through one month after the covered period.
Business utility payments: Copy of invoices from February 2020 and those paid during the covered period and receipts, cancelled checks or account statements verifying eligible payments.
2. Documents that borrowers must maintain but not required to be submitted:
- PPP Schedule A Worksheet or its equivalent and the following:
- Documentation supporting the listing of each individual employee in PPP schedule A Worksheet Table 1 including the Salary/Hourly Wage Reduction calculation
- Documentation supporting the listing of each individual employee in PPP schedule A Worksheet Table 2 specifically that each listed employee received during a single pay period in 2019 compensation at an annualized rate of more than $100,000.
- Documentation regarding any employee job offers and refusals (including notification of employee refusal to the state unemployment office), firings for cause, voluntary resignations and written requests by any employee for reductions in work schedule.
- Documentation supporting PPP schedule A Worksheet “FTE Reduction Safe Harbor”
All records relating to the borrower’s PPP loan, including documentation submitted with the PPP loan application, documentation supporting the borrower’s certification as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support the borrower’s loan forgiveness application and documentation supporting material compliance with PPP requirements.
We highlighted the documentation supporting the borrower’s certification as to loan necessity because this could be easily overlooked and difficult to reconstruct 5 or 6 years after the loan is repaid or forgiven. Good corporate housekeeping suggests that a board meeting or similar action by those in authority met and approved the application for the loan. None of us knew back in early April what damage the shutdown of the economy would do to our businesses and how long it would take to get back to “new normal”, whatever that is. Our advice is to carefully document your thought processes, fears, scenario analysis, temporary plans of action, etc. at the time of the loan application now while it is still fresh if you haven’t already. While it is highly unlikely that any loans under $2 million will be examined, the possibility exists. For loans over $2 million, SBA has indicated that they will audit.