Success with PPP: Setting up the Loan

Congratulations, you got a Paycheck Protection Program (PPP) loan!  As you have probably heard from others, and may have even seen in our earlier blogs about PPP, not all small businesses have had success applying for or getting approval for this type of economic relief.  So take a moment to enjoy the fact that you did receive funding.

Now that you have received your funding, you will need to set things up in your accounting system. There are several components that need to be recorded. In this article, we will discuss how to set up these components in your accounting system. 

Open a separate bank account

While not every lender requires this, opening a separate bank account for your PPP funds will make it easier to track both the loan proceeds and qualified expenses. In addition, reports for your PPP loan may be easier to produce from your accounting software if these transactions are being funneled through one bank account. 

We recommend reaching out to your bank to set up a separate business checking account. Depending on which financial institution you bank with, there may be some costs associated with opening up a new account. However, a brief conversation with either your personal banker or a bank manager could result in those fees being waived. 

Setting up loan entries in your accounting software

Regardless of whether you use Xero or QuickBooks, the steps for setting up your PPP loan will be similar. Your PPP loan setup will consist of three (3) components:

  1. Creating the new bank account
  2. Creating a loan account
  3. Recording deposit of the funds

Let’s take each of these one at a time:

Creating the new bank account. If you have created bank accounts in your accounting system in the past, the steps to create one for your PPP funds will be no different. Simply follow the same steps to create a new account. Next, connect your accounting software to the bank feed using your online banking credentials. It’s that simple!

Bank Feed link from Xero

Creating a loan account. Even though your PPP loan could be forgiven (or partially forgiven) at a later date, you should set it up like any other loan.  To set up this account,  you will have to navigate to the section of your accounting software that deals with your Chart of Accounts. When you create the loan account, you should set it up as a liability account (we recommend you set it up as a long term liability). Make sure the account has a distinct name, such as “PPP Loan Payable”.  Here is a sample below from QuickBooks Online:

QBO New Account Screen

Recording deposit of the funds. Now that you have your bank account and your loan account setup, the last step is to record receipt of the funds. Depending on how you received your PPP funds, you might want to transfer the total proceeds from an existing bank account to your new PPP bank account. If that is the case, be sure to transfer the total PPP loan proceeds.

When you enter the deposit in your accounting software, you want to make sure that it has the following components:

  • Date the deposit using the date the loan was funded.
  • Your total deposit should match the total PPP loan proceeds
  • The account it should point to is your PPP Loan Payable account.
  • The Memo/Description field should clearly indicate these are “PPP Funds Received as of [date]”

Now that you have received the funds you most likely are interested in taking steps to ensure that you can have as much of the loan as possible forgiven.  In order to be considered for loan forgiveness, you need to spend the funds on the right type of expenses at the right time.  Our next article on this topic will address some of the common questions on recording expenses for PPP.