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Tips for Small Businesses Considering PPP Loan Relief

In just 2 short weeks, the first round of Paycheck Protection Program (“PPP”) funding under the CARES Act was exhausted. And it is not difficult to see why – after all, so long as the employer receiving those funds uses at least 75% of the loan proceeds for payroll costs during the eight-week covered period, the loan amount allocated toward each of the following expenses can be forgiven:

  • Payroll costs
  • Payment of interest on covered mortgage obligations
  • Payment on any covered rent obligations, and
  • Covered utility payments.

But many small businesses have expressed frustrations about the loan process and lack of access to funding. Adding to those frustrations are the growing reports of not-so-small businesses, or companies with access to other financing, receiving loans and exhausting available funding.

With many parts of the country either closed down or reopening in phases, now is still the time to take advantage of PPP loans. Some tips for small businesses considering applying for a PPP loan are provided below:

  • Act swiftly and decisively. The application period is open through June 30, 2020, but since these loans are given on a first-come, first-served basis, it is best to apply as quickly as possible. 
  • Even if you already submitted an application during the first round of PPP loans, be vigilant in communicating with your lender.If you have not received an approval or denial, stay in frequent contact with your lender in order to ensure that your application packet is complete and that additional information is not needed. If your lender asks for additional documentation, make that a first priority and get it promptly submitted in order to ensure you have the best chance at receiving funds. 
  • Try working with smaller local banks and community lenders. Most people have learned by now that working with a bank with whom you have an established relationship can give you priority in the PPP Loan application process. But if you have not had luck in this regard, consider working with a new community-based lender for a better chance at receiving funding –local business tends to sympathize and collaborate with other local business. 
  • What if my business is in a high-turnover industry? While the PPP loan program seems like a “no-brainer” for many businesses, some high-turnover industries may worry about whether or not they can maintain the appropriate headcount in order for most or all of their loan to be forgiven. This can be especially concerning, given the short two-year maturity period on PPP loans for unforgiven portions. The Amount of forgiveness is determined by multiplying the base forgiveness amount by one of the following fractions, to be selected by the borrower: 

(Average # of full-time employees per month employed during covered period)
(Ave. # of full-time employees per month employed from Feb. 15, 2019 – June 30, 2019) 

*or* 

(Average # of full-time employees per month employed during covered period)
(Ave. # of full-time employees per month employed during January and February of 2020) 

Small business owners who are not confident in employee retention are well-advised to use loan proceeds only for payroll costs and to keep any remaining funds on hand, where possible, in case some repayment is required. And since the CARES Act does not appear to make a distinction between employees who are let go versus those who leave voluntarily, job vacancies should be filled during the covered period to the extent possible. The PPP loan program does carry some risk for high-turnover industries but given that a personal guarantor or collateral is not required, the program is still less risky than traditional loans in most circumstances.

The full text of the CARES Act is available here. Sections 1102 and 1106 provide specific guidance regarding the PPP Loan program and PPP loan forgiveness.