Under the Care’s Act, the Small Business Administration is touting loans will be forgiven if employers maintain or hire back their employees. But not so fast before jumping in. I can’t get into all the details because it is complex, but get advice before applying. The rules are constantly changing which makes it worse. To prove what a farce it is, The Senate Guidance is called “interim final rules” which is an oxymoron, but consider the source. It is reminiscent of Nancy Pelosi stating we must pass Obamacare to know what is in it.
The PPP or Payroll Protection Plan allows small business up to 500 employees to apply for funding equal to 2.5 months’ average wages and benefits primarily based on last year’s averages. Over eight weeks after funding from a lender 75 percent of funding can be used for payroll and 25 percent for rent, utilities and mortgage interest. For loan forgiveness, there is a big catch. You need to bring back and basically pay the same number of employees you had before any layoffs by June 30. Otherwise it is a loan you must pay back in 24 months.
In my opinion the sole purpose of the PPP is to take the burden off states’ unemployment agencies which cannot handle all the claims. However, if you can’t meet the difficult forgiveness test your small business just became an unemployment bureau funded by you.
The other problems with the PPP are that as written it only covers eight weeks. What if you are not open by then and only have small sales during a ramp-up. Do you cover payroll after eight weeks and can you still meet the headcount test for forgiveness?
If you are not open, it may also be impossible to bring staff back due to social distancing, their own contagion fears and they may make more on layoff due to $600 payment on top of unemployment benefits. Even if you pay them to stay home, they may be better off with unemployment checks.
The above is just a heads-up and not a summary of the 1,000-page Care’s Act. Trust your judgment. If it sounds too good to be true, it probably is not true. It may work for your circumstances but do your homework.
Ronald Reagan once said the most terrifying English words are, “I am from the government and here to help.”
William Love
