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PPP loans. With over 4 million approved the SBA has finally released the forgiveness application

PPP loans are all the rage among small businesses right now. Over 4 million loans have been approved since President Trump signed the CARES Act on March 27, 2020. As of May 16, 2020 an astonishing $513,271,137,359 had been approved. But it took nearly 2 months for the SBA to release something that every PPP loan recipient has been long awaiting. On May 15, 2020 the application for forgiveness was finally available. Yes that's right, every PPP loan recipient must apply for forgiveness. Bow down and beg. This is a key piece of the puzzle that seemed to be eluding many small businesses that have applied for and received money from a PPP loan. Since it's conception there have been many misleading reports that this is free money, a grant to help small businesses during this government mandated shutdown. As a small business owner for over 17 years, I find it very interesting that the portrayed free money/grants are called the PPP 'loan'.

PPP stands for Paycheck Protection Program. In a nut shell, this program was put in place by the Federal government to help small businesses pay their employees during this COVID 19 pandemic. Ultimately to help bring some relief to the record number of people filing for unemployment like nothing seen since the Great Depression. And relief to the unemployment system which is now completely overwhelmed . Nearly $350 billion was made available to small businesses in the first round of 'stimulus' issued under the CARES Act. But what a shocker, that first round did not go so well or as planned. Turns out that the majority of money in the first round ended up going to (not so small) businesses. This resulted in President Trump approving a second round of $310 billion in PPP 'stimulus' money just one month later. But this time the Dept. of Treasury had safe guards put in place to prevent the larger businesses from dipping in. The max amount a small business can receive is $10 million. How small is that?

Here are a few basics of the PPP loan rules if you plan to beg for forgiveness. Sourced from Department of Treasury website.

  • At least 75% of the loan must be used to cover payroll costs, including benefits, interest on mortgages, rent and utilities.

  • The PPP loan provides funds for up to 8 weeks of payroll costs and benefits. The money must be spent during those 8 weeks.

  • Payroll costs include salary, wages, tips and commissions (capped at $100,000 on an annualized basis for each employee).

  • Benefits include vacation, sick, medical, family, parental, health care and retirement.

  • State and local taxes assessed on compensation.

  • For independent contractors or sole proprietors: wages, commissions, income or net earnings from self-employment, (capped at $100,000 annually for each employee).

  • Loans can only be for up to 2 months of your average monthly payroll costs from the previous year plus 25% of that amount. Subject to a $10 million cap.

  • When your loan is due, you will owe money back if you use the PPP loan for anything other than operations listed above. Not more than 25% of the forgiven amount can be used for non-payroll costs.

  • The amount of your loan forgiven will be reduced if you decrease your number of full time employees.

  • Your loan amount will also be reduced if you decrease salaries and wages by more than 25%.

  • The deadline for restoring your full time employees and salary levels for changes made between February 15, 2020 - April 26, 2020 is June 30, 2020.

  • Prior to the SBA releasing the long awaited Forgiveness Application on May 15, 2020, PPP loan recipients could request loan forgiveness by submitting a letter to their lender that includes detailed records of how the money was spent.

Seems pretty simple right? Not quite. There are so many unknowns including when the feds will be adding more modifications, will the IRS change another tax related section of the bill, etc... The lenders are taking guidance from the SBA who is being guided by the Dep't of Treasury. And that guidance has clearly been quite poor. I'm just not confident that a government that screwed up the gas can will create a forgiveness process that is painless and easy as so many seem to think. I personally know of a small business that applied for the loan, received the money, then went and read all the fine print. They sent the money back. Any many, many PPP loan recipients are doing the same.

If you are a small business that has applied for and received a PPP loan it would be worth a long conversation with your accountant as to all the ins and outs of the forgiveness process. And this process has a learning curve filled with consistent haze and speculation. If you are a small business that has thought about going for a PPP loan, but have not done so yet, do yourself a BIG favor and dig deep into this before you make that huge decision.

The PPP loan may seem like a good idea for many struggling small businesses right now. But it just isn't right for most small businesses as seems to be the buzz on the street. If everything was and went perfectly it could be an option to consider. But that's not the case.

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Written by Juli Lester. Financial Coach and owner at Just Live!

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