Paycheck Protection Program Loan Forgiveness

On Thursday, April 2^nd during the daily White House Press Conference, Treasury Secretary Steven Mnuchin told employers that they should apply for the Paycheck Protection Program so that they can get their employees off unemployment and back to work. On Friday, April 3^rd, employers rushed to get their information over to their banks only to find out that the banks were not prepared to handle the influx of applications. Apparently, the Treasury and SBA had yet to advise the banks on how to handle this process. By Monday, “some” banks started submitting PPP applications to the SBA. It seemed like everything was moving in the right direction for employers to get their loans and get their employees back to work.

However, the President has announced that social distancing would continue until April 30^th. Furthermore, New York, New Jersey, and Pennsylvania, and other states have announced more non-essential businesses, like construction, to close and everyone to continue to shelter-in-place until at least the 2^nd week of May.  Some predictions don’t have us returning to “normal” until June or July.

What happens if you still can’t reopen your business?

1. Do you want the loan to be forgiven? If you answered YES, then you MUST pay your employees during the 8-week period after the loan begins.  Then you can apply for forgiveness with your lender.  Forgiveness is equal to the total amount of payments for payroll cost, mortgage interest, rent, and utilities (mortgage interest, rent, and utilities must be incurred after 2.15.20). It is anticipated that no more than 25% of the forgiven amount may be for non-payroll costs.  In summary, we suggest that if you want your PPP loan to be forgiven, you must pay your employees even if your business is not allowed to open.
2. Can I wait to use my loan when the government says I can reopen? That answer depends on if you want the loan to be forgiven.   You have the option to wait until your business can reopen, however, the 8-week period begins immediately when you receive your loan and 75% of the funds borrowed must be used for payroll cost.  By waiting, you risk the entirety of the loan not being forgiven.  Any loan amounts not forgiven are carried forward as an ongoing loan with max terms of 2 years, at a maximum interest rate of 1%.

Note:  If you use PPP funds for unauthorized purposes, SBA will direct you to repay the amount of money used for those purposes. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.

SBA Interim Rule:  https://www.sba.gov/sites/default/files/2020-04/PPP–IFRN%20FINAL_0.pdf

If you have any questions, contact us or give us a call at 856-334-9711.

Disclaimer: This article was written on April 4^th, 2020. The reader is advised to check for changes to current law and to consult with a qualified attorney on any legal issue.