As a business owner struggling through this latest crisis, we know that the last thing you want to have to deal with is jumping through more hoops. However, the federal Paycheck Protection Plan is actually one of the few programs where the hoops are worth it. This program is designed to help businesses weather the COVID-19 pandemic by allowing for potentially forgivable loans of a maximum of two and half times your monthly payroll. Recent articles in the Wall Street Journal and Business Journals show that guidance will soon be issued around forgiveness, but that changes are to be expected. In the interim, we are seeing the programs help businesses weather this economic storm, but there are five things you need to be aware of during this time of uncertainty.
1. FORGIVENESS IS CRUCIAL: We have been advising our business clients to make sure to structure their spending in ways to maximize potential forgiveness. With forgiveness guidance imminent, it is likely that some of the guidelines will be different from what banks or the SBA has been telling businesses to date. Not taking risks, and being conservative with how the PPP proceeds are spent will allow you to take advantage of the forgiveness guidance as soon as it is issued.
2. UNCERTAINTY CERTIFICATION: Some businesses have expressed concern as to whether they should take the loan and use the proceeds. We have advised our clients that your certification needs to be in good faith, but not be concerned if you happen to weather the crisis in a positive fashion. This loan was designed to help businesses, so if you turn out to be less profitable than last year, but still see decent sales or revenue, do not worry. This is what the loan was designed to do. The SBA has determined that businesses who took PPP loans under 2 million in funds will have an assumed safe harbor that the certification was in good faith, but that only means it is an assumption. You still need to satisfy the requirements for forgiveness.
3. STAY ON GOOD TERMS WITH YOUR LENDER: The PPP loan forgiveness process starts with your lender. The lender is the one who will check all of the information prior to submission to the SBA. Staying in touch or up to date on the requirements from your specific lender is almost more important than what the SBA or US Treasury issues. This will make sure that you have cleared your spending plans and questions with the entity that will be making the determination on forgiveness. It is better to ask permission than to beg forgiveness.
4. DOCUMENT EVERYTHING: Given that these proceeds have specific items that are forgivable, it is vital that there be documentation for everything you are spending. We have advised our clients to open a separate account specifically for the PPP proceeds and treat transfers out of the account similar to draws on a construction or development loan. You should be keeping invoices, payroll receipts, or anything that verifies how the PPP proceeds are spent. We suggest paying payroll or invoices directly from the COVID-19 account or transferring to the general operating account with a memo specifying from where the deposit came.
5. ASK FOR HELP: Do not be afraid to contact your attorney if you have questions. This is a new area of law and information is constantly changing. Something you thought was allowable this week may change and be non-forgivable the next. Some firms, like ours, are giving discounts or offering delayed invoicing to businesses during this time to help with the cash crunch. Finally, make sure your attorney is your partner in this process and is responsive. It is vital that your business get the most up to date information as quickly as possible to maximize your forgiveness.