Practical Tips for Managing the PPP
The Payroll Protection Program (PPP) has provided a lifeline to assist businesses through the economic confines caused by the COVID-19 pandemic. For many small businesses, confusion has been constant with respect to loan status, forgiveness and how to manage the loans once they are funded. There is a good bit of blanket guidance that has been put out by the SBA, accounting firms and law firms, but final details surrounding the program are still a moving target. Thus, the average business owner may well find themselves wondering what to do to manage the PPP funds for their individual business.
First, some quick background
- The program was rolled out quickly – speed to market meant a sacrifice of perfection in rollout – lenders were not equipped to handle the rush of applications.
- The process has been managed bank by bank – it operates a little differently across the spectrum. We have seen many sets of information requests, calculation forms, submittal processes and loan documents. We expect forgiveness to operate the same way.
- Rules and guidelines have changed depending on when submissions were made – in other words, the very first to submit applications may have been operating under slightly different guidelines.
The takeaway from this is that what has happened to a neighbor’s company may be very different from what happens to yours.
What to do?
- Talk to your banker – They will be the best source of information on how each individual bank is handling forgiveness of the loans.
- Don’t assume anything – Forgiveness guidelines are fluid, some bank docs don’t even reference forgiveness in their loan docs, some are more specific. While there are general guidelines such as the 75% payroll, 25% other uses limit, there is gray area on how certain expenses will be defined for forgiveness.
- Keep good records – We certainly recommend setting up a separate bank account for PPP funds for ease. Regardless, track the uses of the money. Just like the rush to apply for funds, there will be a rush of forgiveness requests. You will be well served to make it easy on your bank to understand what happened. Be prepared with payroll reports, check copies, etc.
- Be conservative initially – Don’t spend all the money early. If the money is gone and then you find out a portion is not forgivable, that could be a problem. Better to be cautious initially until guidelines are clearer.
- Avoid non-conforming uses – There are companies that will use this money for other purposes, even if temporary. That is a big risk. Even if everything can be trued up within the 8 weeks, it could cause forgiveness issues or worse as many of these loans will be audited. Fines are able to be levied as well.
- Don’t place forgiveness above a business decision – The goal of the program is to help restart businesses and keep workers employed, however, there is still a business decision element here. Especially given the uncertainties around what “re-opening” will look like, be thoughtful about how to spend the money. Paying a portion of the workforce to sit idle for weeks may not make sense. Thus, having a portion of the loan not be forgivable may make broader business sense.
The bottom line is to be intentional with decisions. Plan as though there will not be another lifeline on the horizon. Used properly, these PPP loans can be a great bridge to help companies navigate toward a rebound in the economy. Just beware the missteps that could make a tough situation even worse.