Navigating Paycheck Protection Program Forgiveness
The coronavirus pandemic has been extremely disruptive for entrepreneurs, especially since many of the government efforts meant to aid them only end up putting them in compromising positions.
Stay at home orders meant to slow the spread of COVID-19 have required many small businesses to close their doors due to being nonessential, while those that did remain open have struggled to make ends meet with drastically decreased foot traffic. In order to prevent economic collapse, the government initiated the Paycheck Protection Program, or PPP, back in late March, but the surge of applications caused the program to quickly run out of money. Congress passed legislation to pump more funding into the program back in April, with additional focus on making sure small businesses who truly need the money were prioritized instead of the larger corporations who were taking advantage of relief they didn’t necessarily require, but the process still has its share of problems.
For one thing, the loan is exactly that, a loan, so the money will eventually have to be repaid. There are specific stipulations on how the money is meant to be used, and while some or all of the loan can be forgiven if used correctly, the borrower can end up having to pay up to three times the amount they borrowed if it’s found they used the money incorrectly.
That kind of costly mistake is more than most small businesses can afford, pandemic or not, which is why it’s so important that entrepreneurs have a thorough understanding before they go making any decisions. Unfortunately, the evolving nature of the crisis means the rules and regulations around the PPP are quickly going from incomplete one day to updated the next, with everyone from small business owners to money lenders and even the politicians themselves trying to make sense of it all.
In an effort to aid those of you struggling to stay safe in these trying times, I wanted to use this blog to run through some common problems and provide links to useful resources. The details I’m providing could end up becoming outdated depending on how Congress decides to proceed during the pandemic, but if nothing else, it’s a good starting point on your own journey through this mess.
As I mentioned earlier, the money for the PPP was supplied as part of the Coronavirus Aid, Relief, and Economic Security, or CARES Act, and is intended to cover up to eight weeks of employee wages, mortgage interest, and other expenses that small businesses will have trouble with due to the effects of the coronavirus on the economy. In order for the loan to be forgiven, at least 75% of the money must be used to cover payroll, and no more than 25% can be used for the other expenses. If the money is not utilized in a forgivable fashion, then after six months, the PPP will become an 18-month term loan that the borrower will have to repay with interest.
Borrowers can apply for partial or total loan forgiveness by filling out this form, but they must provide the proper documentation to demonstrate that they utilized the funds correctly and within the determined time period, and be aware of the exceptions and loopholes for what is and is not a forgivable usage of the money.
Independent contractors and self-employed entrepreneurs have been learning about these exceptions and loopholes the hard way. Not only was applying for the loan more difficult for them, but the ability to allocate the funds as stipulated and provide proper documentation of usage is more of a challenge due to the nature of their work. Even those with employees have hurdles of their own to overcome, such as when the money they requested to rehire their employees ends up sitting untouched because the employees refuse to come back to work.
In delicate matters such as these, it is highly encouraged that entrepreneurs consult their lenders or accountants when submitting their applications. I also recommend visiting the US Chamber of Commerce site regarding PPP forgiveness, as it has more detailed information to help you organize your materials. Again, keep in mind how the powers that be are making adjustments to these programs, and that their attempts to resolve certain issues may end up creating new ones.
While no one will have all the answers in these uncertain situations, the more information you have at your disposal, the better prepared you can be. Don’t lose hope, don’t lose patience, and if you’re careful, you won’t lose your business.