The Payroll Protection Program (“PPP”) is part of the two trillion dollar stimulus package recently passed by Congress and signed into law by President Trump. It is designed to help small businesses (businesses with less than 500 employees) make it through the Coronavirus pandemic.
The main feature of the program is that it includes a forgivable loan for up to 2 1/2 months of payroll expenses. While structured as a loan, the Payroll Protection Program states that the loan may be forgiven if the proceeds are used for payroll, rent, interest, utilities, or health care costs.
Sounds simple, right? Unfortunately, it hasn’t been. While the law itself includes some of the details about how it will be implemented, Congress left many of the details up to the Small Business Administration (SBA) and the Treasury Department. During the last few weeks, the SBA and the Treasury have been issuing piecemeal regulations about how the PPP will be implemented. As a result, understanding the ins and outs of the act has proved challenging for even experienced tax practitioners. What we are hearing about it keeps changing, so what you thought you knew about it even one week ago may be a little off, or flat out incorrect.
To make matters worse, the SBA and Treasury have issued very little guidance about the forgiveness requirements for the loans. The SBA and Treasury have focused a lot of the talking on the loans themselves, who can apply, and the compensation of banks.
Questions We’re Getting About the Payroll Protection Program
In order to help our business clients navigate the PPP, we have included some answers to common questions below:
Should I apply?
The simple answer is “yes” unless you have closed your business and are sure you will never re-open. The reason is that the potential benefits far outweigh the cost. Best case scenario, the forgivable loan is free money from the government. Worst case scenario, this is a loan which you will have to repay. However, the loan terms are very favorable. The loan has a term of two years, with no payments due for six months, and an interest rate of 1%.
And even better, this is a non-recourse loan, which means you don’t have to personally guarantee it. So if your business doesn’t survive, you are not personally responsible for the loan and you don’t have to repay it (assuming your business operates as a correctly formed corporate entity).
How much should I request?
We think as much as you possibly can. As mentioned above, at best, this is free money from the government. At worst, you go out of business and don’t have to repay it. (Again, this is assuming you are operating as a correctly formed corporate entity). In a future article, we will go over the issues with the forgiveness portion of PPP. For now, we think it best to get as much as you can.
Please understand, however, the calculation of the amount you can request has changed drastically over the past two weeks. In our experience, many bankers and even accountants are confused over the details of how to calculate the loan amount.
How long does it take to receive the money?
This really depends on your bank. For the past several weeks, banks have been waiting on the SBA and the Treasury to provide them with the information needed to fund the loans. However, as of the writing of this article, that has apparently been provided and most banks are moving forward with funding these loans.
Will there be any money left?
It’s unknown at this time how much of the more than 365 billion dollars has been used up, but Congress and President Trump have both indicated that if it runs out they will add additional funds.
If you have more questions about the Payroll Protection Program and how it can help your business, contact us to set up a consultation. If you want to sign up for our business newsletter to receive more information like this, just email us, and we’ll be happy to add you to the list.