Inspiration, PPP Accounting and COVID-19 Resources
Our world has experienced a seismic shift. No doubt many of you are rethinking priorities and questioning what you thought to be true. You are racing to learn about new coronavirus relief programs. You’re scrambling to shift to online formats for everything from fundraising events to board meetings to programs. With so much going on, today we bring you a pot pourri of information and resources.
This post has three sections:
- We start with inspiration on how to find opportunity in the midst of the current disruption.
- Next we cover tips on accounting for and managing Paycheck Protection Program (PPP) loans.
- Finally we list a few amazing free resources for learning and keeping your sanity.
We hope we have a little something for everyone today!
From Disruption to Opportunity
When the status quo gets turned on its head, opportunities are created. From thinkadvisor.com here are tips to make the most of disruption (edited for brevity and to make applicable to nonprofits):
Shift your mindset – Look for the good, see the opportunity, and summon the bravery to act. Attitude matters.
Connect with experts – Find people you can trust to do some thinking for you, relieving you of the burden of having to know everything at all times while also expanding your perspective.
Look to your centers of influence – Relationships you’ve made in the industry are valuable sources of information. Also create new relationships – such as with members of Smart Nonprofit Money!
Talk to clients and donors – Communicate with your base to address fears or concerns. Donors will reward you with their loyalty. Now is not the time to scrimp on fund development.
Seek inspiration – The creative solution to the obstacle in front of you could come from an unlikely source, so never stop learning. Read books. Hire a coach. Be open to being influenced.
PPP Loan Accounting
Hopefully you received a Paycheck Protection Progam (PPP) loan. If so, congrats! The next step is to manage expenses according to the requirements for loan forgiveness.
Separate Bank Account?
We’ve seen some people (even CPAs) recommend using a separate bank account. We are not in favor of this approach.
If you have payroll, it’s already set up in an operating bank account or dedicated payroll bank account. Changing bank accounts for payroll is a lot of work and could potentially lead to problems with the Federal EFTPS system and your payroll provider.
You also already have systems in place for processing rent, mortgage payments and utilities. You don’t want to switch to paying from a different bank account for a couple of months then switch back again. You may have to start a new sequence of physical checks or change ACH instructions with your utility provider for a couple of months. Not worth the hassle!
We recommend hanging tight with the bank account(s) you currently use for payroll and occupancy costs. Track everything through your accounting system by meticulously coding to the correct accounts. We don’t even recommend creating new classes or location codes as these things will only add clutter to your accounting system.
Keep in mind the Interim Final Rules for the PPP repeatedly refers to 75% as the amount of the loan that must be used for payroll costs to receive forgiveness.
We recommend saving backup for every single expense that’s eligible for forgiveness. You will need it to prove to your loan originator that you incurred expenses eligible for forgiveness. Whether electronic or paper back up, be sure to keep:
- Payroll registers
- Evidence of payroll tax payments such as payroll service reports
- Bank statements
- Utility payment receipts
- Rent payment receipts
You might not normally receive or keep receipts for recurring monthly expenses, but you will be glad you are organized and prepared when it comes time to determine loan forgiveness.
See this post by Stephen Nelson, CPA, Losing PPP Loan Forgiveness. We are not as gloomy as Steve in interpreting the rules for when forgiveness is disallowed. Still it’s good to consider downside risks.
PPP Loan Deposit, Interest and Repayment
While you may anticipate that all of your organization’s PPP loan will be forgiven, it’s still a loan until officially forgiven. Therefore we recommend recording the loan in a separate liability account in your accounting software’s chart of accounts.
The SBA website states “This loan has a maturity of 2 years and interest rate of 1%.” The two year maturity makes it a long term loan. Therefore we recommend using a Long Term Liabilities type of account called PPP Loan, or something similar.
After loan forgiveness has been determined, reclassify the amount forgiven from the PPP loan account to a separate income account using a journal entry. You may need to create a new income account in your chart of accounts.
Record interest expense on the loan to an interest expense account. If you already have an interest expense account, use the same one.
If you need to repay any portion of the PPP loan, code the repayment to the PPP loan account. After reclassifying the forgiven part of the loan to income and repaying any portion not forgiven, the PPP loan account should be zero.
New PPP FAQs
On April 23, 2020 the U.S. Treasury Department issued FAQs about the Paycheck Protection Program (PPP). Of particular interest is #31 which clarifies the certification borrowers must make that the loan is necessary due to “current economic uncertainty.” The FAQ states:
“Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”
The original FAQ provided a deadline of May 7, 2020 which was extended in FAQ #43 to May 14, 2020, for returning the funds in which case the loan will treated as having been applied for in good faith. It warns that a public company “with substantial market value and access to capital markets” should be able “to demonstrate to SBA, upon request, the basis for its certification.”
Hmmm, we were wondering what was behind the rush of recent high profile PPP fund returns.
If your organization received a PPP loan, it couldn’t hurt to document the reasons the loan was necessary. If you somehow now believe the loan was not needed, you also have the option to return it by May 14, 2020.
UPDATE 5/14/2020 – Treasury FAQ #46 explains the new SBA safe harbor for small loans: “Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” From the text of this FAQ, it appears unlikely that the SBA will focus any of its audits on loans under this threshold.
Free COVID-19 Resources
Having trouble sorting out the various COVID-19 assistance programs? Here is an interesting comparison chart by ProBono Partnership/Atlanta.
LaPiana Consulting did a survey of their social service contacts in March and received 433 responses. Survey results are visually summarized here. Just so you know you are not alone.
Some sources of online news and education are waiving fees for COVID-19 related content. A friend who works in fund development recommends free fundraising webinars at IUPUI’s Lilly Family School of Philanthropy. Also The Chronicle of Philanthropy is providing free access to breaking-news updates on the impact of the coronavirus on the nonprofit world.
Finally we have an online community of nonprofit people at Smart Nonprofit Money. Don’t go it alone. Here you can connect, collaborate, continue to learn and, perhaps most importantly, be inspired!