Next Steps if Your Nonprofit Organization Has Received PPP Funding
So, your organization has received funding from the CARES Act Paycheck Protection Program? Congratulations!
You have probably been following the latest bill passed by the federal government, but we’re here to help you understand what you should be doing to be prepared for the future.
Updates continue to be made around the rules for forgiveness and those updates can be found on the Treasury’s website. While applications for forgiveness have been drafted and revised, we wouldn’t be surprised if they are revised again.
Currently, there are two applications for forgiveness, Form 3508 and Form 3508EZ. As you prepare your forgiveness application, here are some points your organization should be thinking through, not only for compliance with the PPP, but also to ensure the sustainability of cash flow over the coming uncertain months.
Carefully Track Eligible Expenses
With the changes Congress recently passed, borrowers can elect an eight- or 24-week covered period. The term has also been extended to December 31, 2020.
Originally, there was confusion about when the covered period would begin. The U.S. Small Business Administration (SBA) has provided clarifications for borrowers to select a covered period which includes two options:
- The covered period is based on the date of receipt of the loan funds
- The covered period is based on the date of the first pay period after the receipt of the loan funds
Regardless of when the covered period begins, one thing is for certain and that is the tracking of expenses. In order to be eligible for the forgiveness, you must track the payroll-related expenses that were paid using the PPP funding.
The PPP Flexibility Act also changed the maximum amount of non-payroll expenses from 25% to 40%.
Be Prepared to Show All Documentation at the End of the Covered Period
- Payroll tax reports (941)
- Bank statements
- Payroll registers
- Retirement plans
- Group healthcare invoices
- Documentation supporting FTE calculations
- Documentation/verification of the existence of non-payroll obligations prior to February 15, 2020
- Invoices and payment support for non-payroll obligations that fall into the 40% category
As Your Organization Returns to Normal Operations and While Funding is Still Slow, Create Additional Forecasting
Develop forecasts and “what if” scenarios that project your organization’s cash flow for at least the next six months. These forecasts may look very different from your original fiscal year budget and strategic plan, and that is okay.
It is better to be more accurate now, than to go off an inaccurate projection. Update this on a weekly basis as things change. For more on projections, see our article, Protecting Your Organization’s Cash During Uncertain Times.
As your nonprofit accounting partner, we are dedicated to keeping up with the latest information. When more clarity becomes available around the forgiveness of the PPP, we will be sure to relay the information. As always, we are here to support you as financial managers.
Please reach out to us if you have any questions.