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Paycheck Protection Program

Paycheck Protection Program

Through the CARES Act, the Small Business Association has approved over $600 Billion in PPP Loans, processing hundreds of thousands of them in a months’ time – an unprecedented undertaking in unprecedented times. Inevitably, the execution so far has been troubled — from multiple portal crashes to franchises like the LA Lakers & Shake Shack receiving millions, only to return them once faced with public scrutiny. These funds were meant to provide hope and help keep our local mom and pop shops afloat, but flawed rules and regulations coupled with biased execution strategies by lenders has meant that those who need it most continue to be left out in the cold.

The biggest confusion surrounding the PPP has been its purpose, so let me clarify: This loan is solely calculated based on an entity’s average monthly payroll without taking into account the revenue losses a business has sustained due to the virus. This means that its intention is to keep people off unemployment.

What appeals to people is that if 75% of the loan is used for payroll costs & the number of employees and their salaries remain the same (Capped at $100,000/year) – the loan becomes a grant and is a 100% forgiven. While this seems like a simple concept in theory, in reality, it is far from it. Last week we asked our followers to send us questions that they had about the PPP loans and I’ve compiled a list of ten questions that were most frequently asked. We’ve tried our best to keep our answers as simple as possible.

 

1. Can the loan still be forgiven if I don’t hire all my employees back?

Yes, but the amount forgiven will decrease. For example, if you have received a PPP loan of $50,000 and you’ve hired 2 out your 4 employees – the loan amount eligible for forgiveness is reduced by half.

 

2. My employees are earning more through unemployment and don’t want to be rehired. What do I do?

The SBA has recently announced that they won’t penalize borrowers who made an offer of good faith to any employee and properly documented their letter of rejection. Also, let’s not forget that at the end of the day it’s a loan at 1% interest, maturity date is 2 years away and there’s no prepayment penalty. Since carry costs won’t kill you – keep it and pay it back once your economic situation improves.

 

3. I’ve received the PPP funds – Can I use it whenever I want?

If your objective is to get the loan forgiven, then you have 8 weeks from the day you receive the funds to utilize all of them. Remember, 75% needs to be used for payroll expenses and the remaining 25% can be used to pay rent, mortgage payment, utilities and interest on any debt instrument.

 

4. Should I open a new bank account for the PPP funds?

Yes. Even though it’s not a requirement I would highly recommend doing so since it’ll be easier for your lending institution to track where the money went when it’s time to review for forgiveness.

 

5. Can I still apply for the PPP?

As of May 5th, 2020, you can still apply for the PPP loan.

 

6. Can I apply to multiple lending institutions?

Yes. You can apply to as many lending institutions as you want, and I recommend doing so. However, you can only accept an offer from one of them. Before you do anything, you should first and foremost check with your bank.

 

7. I’m a summer seasonal business and I don’t currently have any employees. Can I still apply for the loan?

Unfortunately, you cannot. As I said, the purpose of the PPP has been to keep unemployment numbers in check.  However, I think the next relief bill will definitely have some sort of economic relief assistance for summer seasonal businesses.

 

8. I have some employees who earn more than a $100,000/year. Can I pay them their original salaries using the PPP funds?

No. The loan is calculated based on capping salaries at $100,000/year. That’s the maximum salary that can be payed using those funds.

 

9. My bank told me that I’ve been approved by the SBA but I still haven’t gotten the funds yet. How long will that take?

This varies, but in our experience the bank will send you the note to sign within 5 days of getting approved from SBA. Once that happens the bank has 10 days to disburse the funds into your account.

 

10. My bank has still not gotten back to me regarding my application status. What should I do?

Contact Omar Khan at okhan@procida.com and he will try to get your application in with one of our banking partners ASAP

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