Introduction 

The Paycheck Protection Program (PPP) loan is a program under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) passed in 2020.  This program allows certain businesses to obtain (possibly forgivable) loans from the Small Business Administration (SBA).  The purpose of the loans is to incentivize businesses to keep workers on their payroll during a period of uncertainty. There are some documents needed to retain for PPP loan forgiveness.  

Several documents are required to be obtained and retained in the process in order to apply for forgiveness. The SBA’s loan forgiveness application stipulates that the borrower “must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full”. 

What is loan forgiveness under the Paycheck Protection Program (PPP)?  

Under the rules of this program, the loan may be fully forgiven if the funds are used for specified payroll costs, interest on mortgages, rent, and utilities.  For details on loan forgiveness, please see our article titled Update to the Paycheck Protection Program (PPP) Loan Forgiveness Rules.

What is the typical process for PPP loan forgiveness?  

The process for loan forgiveness begins with the lender who funded your PPP loan.  See detailed discussion on PPP loan forgiveness in our article What Do I Need to Know About PPP Loan Forgiveness?  

What are the document retention requirements for PPP loans? 

As applicants apply for loan forgiveness, the SBA will be reviewing and processing thousands of forgiveness applications. The process begins with the SBA requiring supporting documents to be submitted to the lender and then to the SBA. The SBA published a separate list of documents for the borrower to maintain for at least six years. The six-year retention period refers to the six years from the time the loan is forgiven or repaid. 

Document retention  refers to the process of identifying, storing, retrieving, and eventually destroying documents related to your business and business transactions.  Anyone involved in operating a business, regardless whether the business obtained a PPP loan or not, should set up and adhere to a document retention program.  If you asked a lawyer, accountant, or banker how long to keep records, most would answer that seven years is a standard time frame.  One rule of thumb is to retain documents for one year beyond any statute of limitations that your business might be subject to in the normal course of business.   

Maintaining records for seven years is a prudent approach in most cases.  For PPP, the applicant or borrower is required to retain PPP documents for six years after the date the loan is forgiven or repaid in full.  Most importantly, authorized representatives of the SBA must be granted access to these files if requested.      

What documents do I need to retain for PPP loan forgiveness? 

Funding for the PPP loan and eventual loan forgiveness is based on funds solely used for payroll, interest, rent, and utility payments. Some lenders set specific requirements for what documents support forgiveness and should be maintained for six years.  In any case, be sure to check with your lender on any specific requirements. In general, the items to maintain include: 

  • Loan application items Retain all records submitted with the loan application. 
  • Loan necessity items Retain all documents that support the applicant’s necessity for the loan. Also, retain all documents that support the applicant’s eligibility for the loan. 
  • Loan forgiveness application Retain all documents that support the applicant’s loan forgiveness application.
  • Payroll records Retain your business payroll registers and proof of fund transfers to fund the payroll.  If you utilize a professional employer organization (PEO) to process your payroll, be sure to save your payroll invoice. This payroll invoice or report identifies payroll costs and employee benefits paid during the period used for loan forgiveness. Moreover, most payroll providers have created custom reports that pull the relevant payroll data that aligns with the loan forgiveness period.
  • Utility bills: Keep invoices and statements for electric, gas, phone, internet, and heating service providers. 
  • Rent and mortgage interest statements: Keep proof of payments for any monthly rent and mortgage interest payments during the loan forgiveness period. 
  • Bank statements: Keep your bank statements that show outgoing payments related to the above items. 

Retention Format 

The SBA issued various FAQ publications related to the PPP loan process. You can find a list of documents needed to retain for PPP loan forgiveness and a set of FAQs issued August 4, 2020 address the documentation format. According to the FAQs, the PPP lenders can accept scanned copies of documents, E-signatures, and E-consents for loan forgiveness applications and loan forgiveness documentation.  The ability to use scanned or electronic copies of signed loan forgiveness applications and documents eases the retention burden as companies move towards fully paperless environments.  According to the FAQs, this guidance does not supersede signature requirements imposed by other applicable laws. This includes any requirements imposed by the lenders’ primary federal regulator. 

Summary  

The typical process for PPP loan forgiveness involves submitting your loan forgiveness application and getting bank approval of the loan forgiveness. It is essential that you retain documents related to the PPP loan for at least six years, or longer in some cases, as mentioned in the article.  This documentation should include payroll records, utility bills, mortgage statements, rent statements, and bank statements. Check with your lender for other specific documents required.  

If you are looking for a tax preparer or outsourced accountant to help you with your business processes related to records retention, contact us for a free, no-obligation consultation.    

Meet the Author

Rebecca is a CPA who serves a variety of clients for PW Associates, performing outsourced tax and accounting services. Rebecca specializes in financial reporting, tax compliance, and human resources.  For over 25 years, Rebecca has worked in various accounting and finance roles for both public and private companies, as well as an auditor for Ernst & Young.


Contact Information

Disclaimer  


This communication is provided by PW Associates, PLLC for educational and informational purposes only and is not intended, nor should it be construed as tax or legal advice.  The comments in this communication are based on our understanding of applicable rules and regulations as of August 1, 2020.   
   
Any commentary interpreted as tax advice in this communication (including attachments and/or links) is not intended to be used, and cannot be used, for the purpose of avoiding penalties imposed on the taxpayer by any governmental taxing authority or agency. In addition, if any such commentary or advice is made available to any person or party other than the party to whom the advice was originally directed, then such commentary or advice, under IRS Circular 230, is to be considered as being delivered to support the promotion or marketing (by a person other than PW Associates, PLLC) of the transaction or matter discussed or referenced. Thus, each taxpayer should seek specific tax advice based on the taxpayer’s particular circumstances from an independent tax advisor. 

Useful links in this post 

Business Loan Program Temporary Changes; Paycheck Protection Program – SBA

How long should I keep records – IRS
 
Record Keeping for a Small Business – SBA
 

Our Services

CFO | Tax | Accounting | Strategy