Small business owners are discovering that securing a Paycheck Protection Program loan is easy compared with living up to its obligations.
The program of federally guaranteed loans, created in March by the CARES Act, was designed to keep workers on the payroll or get furloughed workers rehired during the coronavirus pandemic.
However, with the three-month shutdown of nonessential businesses still partially in effect on Long Island, many entrepreneurs are complaining that they don't need to bring workers back now, and instead could better use the PPP money later.
Nearly 4.7 million loans were made between April 3 and June 20, including about 305,775 in New York State, according to the U.S. Small Business Administration. The agency hasn’t yet been able to provide data for Long Island.
“The average loan size is $76,000 now, a $130,000 reduction from Round 1” for the program, said Beth Goldberg, director of SBA’s New York district, which includes Long Island, New York City and the Hudson Valley. “The lower amount shows the dollars are going further to assist Mom and Pops.”
Still, questions abound about PPP loans, which are up to $10 million per applicant and have an interest rate of 1% with a five-year term. Applicants should have 500 or fewer employees. All or a portion of the loans may be forgiven.
Q: When do I have to start using the PPP loan?
The borrower should get all their employees back on payroll once the loan funds are deposited to their bank account and they are ready to resume operating. The borrower has 24 weeks to spend the money.
Q: When must I have exhausted my PPP loan to have it forgiven?
Q: Should I keep the PPP loan in a separate bank account?
Yes, because it will be easier to show how the money was spent. Do not mix the PPP funds with other money.
Q: If I don’t use at least 60% of the PPP loan for payroll expenses, is the loan no longer forgivable?
A portion of the loan is still forgivable, but you don’t qualify to have 100% forgiven. The remainder will become a five-year term loan with an interest rate of 1%.
Q: Where can I find the application to have my PPP loan forgiven?
The full, five-page form may be found at https://content.sba.gov/sites/default/files/2020-06/PPP%20Loan%20Forgiveness%20Application%20%28Revised%206.16.2020%29.pdf. However, a 3-page "EZ application" is available for borrowers who are self employed or did not reduce the salaries of employees by more than 25%. The EZ form is at https://content.sba.gov/sites/default/files/2020-06/PPP%20Forgiveness%20Application%203508EZ%20%28%20Revised%2006.16.2020%29.pdf.
Q: Do I really have to call back employees and pay them when I have no work for them?
Yes. The CARES Act doesn’t require employees to work to be paid for the 24 weeks; its purpose is to get people off unemployment.
Q: Can I use the PPP loan to provide back pay to furloughed employees?
The money should be used to pay employees going forward.
Q: What should I do if an employee refuses to return to work because their unemployment benefits are more than the salary I pay them?
The employer must inform the state Department of Labor that it has called back the employee.
Q: Will the loan amount that’s forgiven be reduced if I offer to rehire an employee, but he or she refuses to return to work?
No, but you must make a good faith, written offer of rehire and document the employee’s rejection of the offer.
Q: Can I use some of the PPP loan to pay bonuses to my employees who are working remotely, so I can qualify to have the loan forgiven completely?
No, employees cannot have a windfall because of the coronavirus pandemic.
Q: Can I pay different wage rates now than what I paid before the coronavirus pandemic hit?
No, you must have the same number of full-time equivalents as you previously had and cannot pick and choose how much they are paid.
Q: If an employee is paid more than $100,000, PPP funds cannot be used for the portion above $100,000. But does the PPP cover non-cash benefits like employer contributions to retirement plans?
Yes, PPP funds can be used for employer contributions to defined-benefit pensions and 401(k) plans, health insurance and payroll taxes.
Q: Can PPP funds be used to pay a housing stipend or allowance that is part of an employee's compensation?
Yes, but cash compensation above the $100,000-cap per employee cannot be paid with PPP money.
Q: Should I be worried about an audit of how I use the PPP loan?
You don’t have to be concerned if you use the funds properly to pay your employees for 24 weeks.
Q: Will SBA review my certification that I needed a PPP loan?
Only if the loan exceeds $2 million.
Q: What type of documentation will I receive to prove to the Internal Revenue Service that my PPP loan has been forgiven?
If the PPP loan is forgiven it is not subject to federal taxes.
YOU HAVE QUESTIONS, THEY HAVE ANSWERS
• The Small Business Development Centers at Farmingdale State College (email@example.com or leave a message at 934-420-2765 and a business adviser will respond) and Stony Brook University (firstname.lastname@example.org or leave a message at 631-632-9070)
• The Long Island chapter of the Service Corps of Retired Executives (longisland.score.org)
• La Fuerza Community Development Corp. in East Norwich (516-666-5071 or email@example.com)
• The Entrepreneurship Assistance Centers at Hofstra University (firstname.lastname@example.org or 516-463-4069) and Suffolk County Community College (EAPCenter@sunysuffolk.edu or 631-851-6214, and starting April 20 Spanish speakers can go to email@example.com or 631-851-6224)
• Information about PPP is at sba.gov/paycheckprotection