The PPP and EIDL are two of the relief options that were made available to small businesses. Learn more about these two programs and how they interact in our comprehensive guide.
Why you need to track the loans
The Paycheck Protection Program (PPP) offered loans that could be completely forgiven if used on eligible expenses. You can review everything you need to know in our simple guide on the PPP. This requires diligent tracking to make sure you’re spending the loan on eligible expenses. At least 60% of the loan can be used on payroll expenses with the remaining 40% usable on rent, lease, utilities, and mortgage interest.
The EIDL is backed by the SBA and comes with its own restrictions. The EIDL is less restrictive and can be used on any working capital. (Learn more about these restrictions in our overview)
Both of these loans have recordkeeping requirements and can be audited at any time by the SBA. You should always be prepared to provide records for the most recent five years until three years after your loan is forgiven or paid off.
Opening a dedicated bank account
Hands down the best way to track an EIDL or PPP is to have a dedicated bank account for the funds. Either have the funds deposited or transfer the funds to a fresh bank account.
The main benefit is having a clear activity log of what you spent your funds on. No need to track transactions in multiple places or digging for receipts. You will also see the remainder of the loan funds available to you through the balance of the account allowing you to change your plans based on the loan funds available to you.
Tracking on a spreadsheet
Opening up a new bank account isn’t always possible. Whether you’ve already received the funds and began using them or you can’t open up a new bank account, it’s best to start tracking the loan on a spreadsheet.
Start by recording your loan balance and be diligent in entering every expense you want to use the loan funds on into the spreadsheet. For the PPP, it will also be best to record what type of expense it is (payroll, rent, lease, utility, mortgage interest) to make sure you’re within the 60/40 requirement.
As you continue to use the loan, you can quickly check the remaining balance you have left by subtracting all the expenses from the loan balance. Sum up any eligible payroll expenses you might have to see how close you are to the 60% requirement if you’re tracking your PPP.
Maintaining good records
Unfortunately, these programs have been misused with multiple instances of fraud already being prosecuted. To account for this, both programs have strict recordkeeping requirements to prove no misuse has occurred.
For the PPP, payroll reports, receipts, and bank statements will suffice. You can read more in our complete overview of the program.
The EIDL, however, has stricter requirements. You will have to maintain accurate books for the most recent five years of operation. This means you need to have ready:
- Financial and operating statements
- Insurance policies
- Tax returns and related filings
- Records of earnings or dividends distributed
- Records of compensation to owners or shareholders
These financial and operating statements can also be used to quickly check the use of your PPP funds. By looking at an income statement for your 8 to 24 weeks period, you can quickly check how much you’ve spent on eligible expenses like payroll, rent, lease, utilities, or mortgage interest. You can learn everything you need to know about income statements in our CPA reviewed blog post.
Unsure where to start? Bench can help. Our monthly income statements and balance sheets have you covered for an SBA audit, but it goes beyond that. We can help you master your financials and take back your tax season.
