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PPP loans for contractors and the documentation you should have

The impact of COVID-19 on the construction industry has been felt in both staffing, jobsite operations, and funding as projects become uncertain and employee safety becomes paramount. The Small Business Administration (SBA) Paycheck Protection Program (PPP) outlined in the CARES Act was intended to provide relief for small businesses struggling during the pandemic, and the construction industry has been a leading recipient of the loans.  

While the program was designed to be as pain-free as possible, it has not been without its challenges for contractors whose businesses operate differently than many other industries. Namely, contractors have been concerned over FAQ #31 which indicated that all companies private or publicly traded, that have access to capital may be highly scrutinized for economic need, leaving many wondering if their loan forgiveness may be on the chopping block due to the unique nature of the industry that requires large amounts of working capital and cash on hand 

Key to achieving maximum forgiveness for contractors will be proactive documentation and preparedness. While loan terms were extended recently in the PPP Flexibility Act, contractors should be preparing their documentation now to avoid scrambling when the time comes. Critical to forgiveness for contractors is ensuring they can prove economic need and effectively communicating how the unique nature of the construction industry impacts available funds. 

Below is a list of documentation pieces contractors should have on hand when submitting their forgiveness application. 

PPP forgiveness documentation for contractors 

  1. Basic up-to-date contact information. 
  2. Thorough documentation of need – Guidance suggests that contractors should include with their documentation specific rationale for why they may keep significant working capital on hand. Explaining that cash, working capital, and equity is often needed for bonding credit, and that if significant commitments are lost due to the pandemic, it could affect employee counts, will be essential. Additionally, it’s important to note funds designated for costs such as retirement obligations, ESOP funding, succession plan commitments, and contingencies that are necessary for ongoing operation.  
  3. Average monthly payroll costs – This includes salaries, wages and commissions, cash tips, paid time off for vacation, parental/family/medical/sick leave, dismissals and separations, retirement benefits, and employee-related state and local taxes. Borrowers should document how they calculated these costs.  
  4. FTE employee details – This includes names, monthly eligible compensation, annual salaries prorated for the month, and annual cash compensation. If contractors had to lay off employees and were unable to rehire them by Dec. 31, 2020, or employees were terminated or left and were unable to be replaced by Dec. 31, 2020, that should be noted as well.  
  5. Proof of payroll – This includes Forms 940, W-3, and 1099 where applicable, and payroll processor records from professional employer organization (PEO) where applicable. Employers with employees living abroad or making over $100,000 should include those employees’ W-2s. 
  6. Proof of non-payroll expenses: This includes mortgage or rent, mortgage interest, utilities, and vehicle loan/lease documentation for vehicles owned by the business. 
  7. Articles of incorporation/organization – This includes business formation/established date. 
  8. Proof of ownership for owners over 20% – These documents can include 2019 or 2018 Schedule K-1s (2018 if ownership changed), 2019 or 2019 Form 1040 Schedule Cs (2018 if ownership changed), 2019 Form 1065, and bylaws and operating agreements stating ownership percentages. Also have handy the current government-issued photo ID, each owner’s TIN, EIN or SSN, and email addresses for owners over 20%. 
  9. Proof of Active and Good Standing from your secretary of state.  
  10. Completed SBA PPP application form. 
  11. Voided check for e-transfer information. 

Contractors who prepare thorough documentation and rationale for their economic need will be more likely to of achieve loan forgiveness. Contact us for questions and assistance with your PPP loan forgiveness application.