How to Balance Your Construction PPP Loan

How to Balance Your Construction PPP Loan
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Karine Woodman

Preparing your PPP Loan for potential forgiveness as a construction business can be easier to manage if you make sure to stay organized. In this article, we discuss how you can continue to work with your lender for successful loan forgiveness, and different ways you can remain organized to keep track of all your payroll funding expenses. We know that navigating COVID-19 is all about cash flow as a construction business, so let’s get started!

Contact Your Construction Company’s Funding Partner

Whether you went straight through the Small Business Administration, or worked with your local bank to get the Paycheck Protection Program underway, you must continue to stay in contact with them about the forgiveness aspects of your loan. The forgiveness portion of the loan has been a difficult portion to navigate due to some unclear specifications within the CARES Act. Therefore, it is important to ask your banker for a list of things needed to process the forgiveness portion for your PPP Loan. We recommend doing the following checklist.

Ask Your PPP Lender The Following:

  • For a list of documents required for loan forgiveness. They should have some information given to them by the Small Business Administration to use, but it is common for each bank to also have their own processes and paperwork that you may need to navigate.
  • How they would like to receive their information after the 8-week payroll period that the funds were supposed to be used. Do not assume this answer will remain the same. Do what they ask you to do to begin with, but make sure to check in with your lender before submitting your information, as many are updating processes quickly to manage the overload of clients they are now servicing.
  • If there is a special form that will be required or if a spreadsheet is sufficient when reporting what your PPP Loan was used for. Because more rounds of funding have been discussed for release, and with uncertainty in navigating how long each state’s shut down will last, it is important to stay up to date on what your bank is requesting. Check in with them to see if they will need more information in the future, should economic recovery take longer.

How to Store Your PPP Documents For Later Use

Now that you know what your lender will be expecting to receive from you, it’s important to keep your documents all in one place. Considering Software Connect’s Construction Industry Survey found that a significant amount of construction businesses still rely on manual methods to run operations, it’s vital to remain organized! Here are some great ways to use technology to streamline your loan documentation:

  • Create a digital folder to store your documents as you make financial transactions. You can use your computer drive or online document storage, like to easily share information with your loan provider.
  • Download PDF or Spreadsheet copies of your bank statements and payroll records throughout the time period of your PPP funding use.
  • Take pictures or scan your receipts to store them digitally.
  • Create sub folders, dated with the date of the money transfers, and put all documents related to that transfer within that folder.

Ensuring Your Accounting Is Accurate for Your Construction Business

It is important to record all PPP funds you have received. If you have an accounting software that you utilize, ensure it has recorded your PPP loan amount correctly. Reconciling your accounts within your monthly bookkeeping will also help to keep things organized during your forgiveness reporting.

Your PPP Funds are not income to your business. It should be recorded as a liability, or a loan. You should decide how you are going to pay off the loan portion of the PPP if not all of it is forgivable. Will you be treating it as a “quick turn around” or paying the debt off slower? Classify as a ‘short term liability account’ if you are planning to have the full portion be forgivable. Otherwise, you should classify this funding as a long term liability account if planning to carry out the 2 year loan term.

The Accounting Process to Manage Your PPP Funds

This portion of our article is to help you navigate tracking your PPP Funds every step of the way while ensuring that you don’t spend hours re-doing a lot of your accounting processes. We have navigated these funds quite a few times already, and think these processes and advice will help to keep you organized without pulling your hair out!

  • If your lender created a new bank account for you, create that bank account in your accounting software. Most programs allow you to sync your information in real time. You should label this as an addition to the liability account. Make sure to label this account to include the last 4 digits of the account number.
  • Attach documentation to each transaction in your accounting software if you can. Within QuickBooks, and other bookkeeping softwares, you should have the functionality to upload documents and attach them to your transaction.
  • Only transfer the amount that matches the documents if possible. Your lender should give you information that will help you navigate how you should be optimizing the use of your PPP Funds in the correct categories. If they have not, we recommend following up with them as soon as possible. Remember, once you receive the funds, your 8 week period has started!
  • You should then transfer your PPP funds to your operating account to be used. It is very important that you do not change your payroll processing to the PPP bank account. You don’t want to do this because not all your payroll costs may be forgivable, such as materials reimbursements. If you received funds from a different bank and that is not the same bank that you normally work with, they might allow you to do a wire transfer at no charge.
  • You only need to make a transfer from the lender provided bank account to the operating account as follows:
    • At every payroll
    • If you paid utility costs
    • At time of mortgage payment

Things You Should Not Do With Your PPP Funds

Do not pay your IRS tax payments from your new PPP bank account. You don’t want to do this because the employer portion of your tax payment, the social security (6.2%), and medicare (1.45%) is not forgivable.

Do not have your mortgage company draw from your new PPP bank account. The principal payment of your mortgage payment is not forgivable. Paying your principal out of your loan funds will cause more work and potential errors in tracking the forgivable portion because:

  • You will need to remove the amounts that aren’t forgivable from the transactions.
  • The documents might not match the actual amounts that are forgivable
  • If you are using a lender provided bank account, showing this use of funds could actually automatically make this portion of your loan unforgivable.

A Free Construction Business PPP Worksheet For You To Use

We have created a PPP worksheet to track expenses over the 8 week period. You get a get a copy of it within our Facebook Group Construction Cash Flow Round Table under the units section or you can click here.

Here are a few tips to using the spreadsheet:

  • You must make your own copy of the spreadsheet in order to populate the fields
  • Remember that the amounts are net numbers, so you might have to do some side calculations before you populate the fields.
  • We updated the spreadsheet on 4-28-20. If you accessed it before this date, you may want to make a new copy and paste your information from the previous version.
  • This is a simple worksheet to assist in managing costs that are forgivable, but can also make an additional copy to estimate your costs over the 8-week period or to play around with forecasting the total numbers to be used.

What is Not Forgivable In my PPP Loan?

As a construction business owner, you have much more than bookkeeping on your mind. So, we wanted to make sure to add a few reminders about the following PPP forgiveness questions we see most commonly.

  • You cannot include employee wages over $100K
  • Forgiveness does not include the employer portion of tax liability
  • You can include health insurance benefits paid
  • The beginning of the 8 weeks starts from the date of the loan documents

A Final Note on Reconciling Your Accounts

In general, make sure to reconcile your bank and credit card accounts monthly to verify the transfers actually occurred as intended. This is important because you can find mistakes in transaction recordings and/or duplicate transactions.

  • Make sure that the amounts you are transferring have good backup documentation.
  • Verify that you have recorded the information to the correct bank and loan accounts after you have transferred funds.
  • Use a pdf writer to write notes on the documents if you made calculations or want to take notes on the backup documents. This makes less mess
  • Make sure to verify the expense accounts that are being used for the PPP funds to ensure that they are all forgivable accounts.
  • Make sure to file your payroll returns on time!
  • Make your tax payments timely, such as your 941 payments and state unemployment payments to ensure you are not going to become

Looking for help navigating your bookkeeping through this time? Contact us today to discuss how we can support you!

Join Our Facebook Discussion Construction Cash Flow Round Table

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