Thousands of businesses throughout California are using loan funds through the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) to keep their businesses afloat during an economically disastrous time. While these loans can be profoundly helpful for small businesses, it’s businesses must do proper bookkeeping and tracking of how they use the funds to prevent audits and other issues.
Small businesses that use PPP loans and EIDL loans should contact the
Roseville CPAs for PPP and EIDL loans from Cook CPA Group for help with their bookkeeping and tracking. The accountants from Cook CPA Group are eager to help small businesses with the bookkeeping and tracking of their loan funds throughout this challenging time.
How PPP and EIDL Loans Can Help Small Businesses
Both PPP loans and EIDL loans are available to help small businesses that are facing economic hardship as a result of the novel coronavirus. The following is information about what PPP loans and EIDL loans are, how they can help small businesses affected by the coronavirus, and how small businesses can apply for them.
PPP Loans
The funding provided by PPP loans is meant to cover necessary business expenses. Only small businesses can qualify for these loans. To be considered a small business, the business cannot employ more than 500 people. Another requirement for qualification for these loans is that COVID-19 must have negatively impacted the business.
Small businesses should note that the funds they receive through a PPP loan can only be used for specific purposes. PPP loans should mostly be used to cover employee payroll, which includes salaries, wages, tips, and commissions, as well as benefits including vacation pay, parental and family leave, insurance premiums, retirement benefits, sick leave, and severance pay, if applicable. Payroll for one individual employed by a small business cannot exceed $100,000. Sole proprietors and independent contractors can use PPP loans for their own payroll costs (income, wages, commissions, and net earnings), though it is capped at $100,000 on an annualized basis.
EIDL Loans
EIDL loans provide small businesses with a loan of up to $2 million, including a loan advance of up to $10,000 that does not need to be repaid. Only small businesses (no more than 500 employees) that operate primarily within the United States, are independently operated and owned, and are not dominant in their field on a national basis can qualify for EIDL loans.
EIDL loans have an interest rate of 3.75% with a repayment term of up to 30 years, although repayment can be deferred for up to one year. Funds received through EIDL loans can be used for: employee payroll, materials and supplies used for the company’s goods or services, and mortgage and rent; the funds cannot be used for building expansions and physical repairs, employee bonuses, or refinancing of long-term debt.
How an Accountant Can Help You With Your EIDL and PPP Loans
An accountant can help your small business apply for EIDL and PPP loans, spend the loan proceeds properly, and enter into the loan forgiveness period. To apply for an EIDL loan, you will have to provide information about gross revenue over the preceding 12 months—if you haven’t kept records of your company’s revenue over the prior 12 months, an accountant can help you do retroactive bookkeeping to figure it out. To apply for a PPP loan, you’ll have to submit your payroll records, among other documents.
If your small business qualifies for either or both of these loans, bookkeeping will be vital because you’ll have to prove that you’re spending the funds according to SBA guidelines. An accountant can help you get the right structures in place to manage your spending of the funds you receive through these loans. For example, it’s recommended that you open a checking account specifically for the expenses that are paid for with these loans. It’s especially important to use separate accounts if your business is using both a PPP loan and an EIDL loan since both loans cannot be used to pay for the same type of expenses. An accountant can advise you on which accounts to open and at which banks, and they can also advise your small business on the qualified expenses for each type of loan.
Bookkeeping is also important because it can determine whether your small business qualifies for loan forgiveness through a PPP loan. To qualify, you’ll have to prove that your company spent the funds received through the loan only on qualified expenses.
Small businesses should note that they face the risk of being audited if they receive these loans but don’t spend them properly or didn’t entirely need them in the first place. Use the help of a qualified accountant to show that you’re using these funds properly to avoid audits and other complications that can hamper your business’s chance of success.
Roseville Accountant for Bookkeeping PPP and EIDL Loans
PPP loans and EIDL loans allow businesses to receive necessary funding during an unprecedented period of economic downturn. While these loans can help businesses immensely, up-to-date bookkeeping and tracking are of vital importance. Get in touch with the Roseville PPP loan and EIDL bookkeeping accountants from Cook CPA Group today for help with your loans.
