The Paycheck Protection Program was one of the largest business loan programs in existence. Though complicated, it delivered an important injection of needed funds for organizations who needed it the most. But like we said, much of this was complicated, and businesses needed to understand how to make the money work.
What Is the Paycheck Protection Program
As we discussed in a recent blog, the Paycheck Protection Program includes billions in federally guaranteed small-business loans provided through a network of more than 800 banks. The Paycheck program provides eight weeks of cash-flow assistance to small businesses with 500 employees or fewer.
The low-interest loans are meant to cover payroll costs, paid sick leave, supply-chain disruptions, employee salaries, health-insurance premiums, and mortgage payments. But there’s more you should know—especially now that time has passed and much of the program has been exhausted.
Denied or Approved: Four Resources for Businesses Seeking Relief
Luckily, our friends at Gusto HR have written an in-depth series on the topic, ranging from an article exploring alternatives to the best practices for spending and disbursing money received.
Eight Common Questions about the PPP Program
Beyond the ease of qualifying and low interest rates, perhaps the most attractive feature of Paycheck Protection Program (PPP) loans is that they are eligible for “forgiveness.” This means that the lender can release the borrower from the obligation of repaying the balance. In other words, borrowers can get up to 2.5 times their monthly payroll costs without paying a cent.
Gusto went out of their way to answer some of the most common questions about the program, including:
- How do I qualify for PPP loan forgiveness?
- What costs are included under forgivable payroll costs?
- What info do I need to include in my application for loan forgiveness?
- What do I need to do to get my loan forgiven?
- What would reduce the amount of my loan that’s forgiven?
- What if I’ve already had to lay off employees—can I still get loan forgiveness?
- When will I find out if my loan was forgiven?
- If my loan isn’t forgiven, how do I pay it back?
What to Do If You Weren’t Approved for a PPP Loan
While the PPP was one of the biggest loan programs for businesses, it was also one of the most sought-after. Unfortunately, even with two waves exceeding half a trillion dollars, the money was grabbed at an alarming rate.
With so many businesses—including larger enterprise companies—flooding PPP lenders’ application queues, you may be better off looking for resources that are smaller but more focused for businesses like yours. As discussed in the Gusto blog, I Couldn’t Get a PPP Loan. What Do I Do Next?, here are just a few options:
- Other SBA Funding: There are multiple other SBA loan programs with available funds for small businesses, like Economic Injury Disaster Loans, Express Loans, or Express Bridge Loans, to name a few.
- Private Resources: From Zapier’s $1 million small business assistance fund to Salesforce’s $10,000 small business grants to the $500 million Goldman Sachs SMB emergency loan fund, there are many options from the private sector to consider as well.
- State and Local Funds: State governments, counties, and communities have come together to support their hardest hit neighbors with resources like Main Street support programs or crowdfunded business relief grants.
- Regional Lending: Beyond becoming PPP lenders, your local and regional banks may be providing additional pandemic support in the form of emergency financing, expedited loan approval, payment assistance or deferment, and more.
Avoid PPP Loan Fraud
From Harvard to Shake Shack, entities are dipping into the PPP whether or not they should. Pair this with an unclear application process and a boatload of applicants, and fraud was common. How can you reassure the government that you were good for the money and how can you stop fraud? Here are just a few tips:
- Certify, in good faith, that you need your PPP loan.
- Make sure every business only applies for one loan.
- Use your loan the right way.
Spend Your PPP Money the Right Way
With the system being defrauded, it pays to be honest about the way you spend your PPP money. Part of the program requires that you use the funds to keep your business going while ensuring that you qualify for loan forgiveness. After all, when all this is over, you will need to apply for forgiveness, and at that stage will need to prove that you followed the rules.
Gusto wrote a few tips on how to budget your loan funds and keep your expenses organized so your loan forgiveness application is a breeze.
- Immediately after Approval: Understand the requirements for forgiveness. At least 75% of the money needs to go towards payroll expenses, and the other 25% can go to rent, utilities, and interest on debt. Also, maintain the number of full time employees and the pay they receive, as failure to do so will result in your forgiveness being put in jeopardy.
- Calculate Mandatory Spending on Payroll: If 75% of your loan has to go to payroll, this one is easy. Multiple your approved amount by 0.75.
- Calculate Number of FTEs: The average number of full-time equivalent employees (FTEs) that you must maintain during the eight-week forgiveness window is based on your FTE count, either between February 15 to June 30, 2019 or January 20, 2020 to February 29, 2020.
- Calculate How Much You Must Pay Each Employee: To qualify for loan forgiveness, you cannot reduce the average wage of any employee by more than 25%.
- Plan to Allocate: Decide how you’re going to spend the money.
For more information on the steps involved in ensuring compliance, we invite you to read the much more detailed Gusto blog.
Check out Gusto HR’s list of resources here:
- Relief Spreadsheet exploring private funding options.
- Resource hub featuring state and local relief funds
- List of resources available for small businesses.
Your Hub for Resources: The Controller’s Council
Though it may seem like we’re in the middle of the woods and it may feel like there’s no way out, rest assured, we’ve survived worse. Soon, the curve will “flatten” and the bounce will come, and when that happens, it pays to have a plan for success too.
That said, let the phrase ‘never again’ echo in your mind. Crises will happen again, and it pays to have the right people, processes, and technologies in place to adapt. Stay tuned for our crisis preparation guide.