Making Decisions Regarding PPP Loan Disbursements

By May 1, 2020 Employment News, News

Key Points:

  • Small businesses are starting to receive approval on their Paycheck Protection Program loans.
  • The program is intended to enable rehiring of furloughed workers.
  • Some businesses are using the funds immediately to rehire workers while others are evaluating other options.

As businesses start to receive approval on their Paycheck Protection Program (PPP) loans, decisions will need to be made about furloughing or rehiring employees, depending on the business’s needs.

The PPP’s Intent

The Small Business Administration (SBA), the sponsor of the PPP, intends for these loans to provide a direct incentive for small businesses to keep their workers on the payroll.

SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

However, some small businesses are grappling with decisions about how to best take care of their employees during this uncertain time.

Deploy Funds Now or Later?

In a recent Forbes article, author Bruce Brumberg spoke with Boston-area law firm Morse and concluded that loan recipients need to be careful about how they use their funds so that they receive maximum benefit. “How do you recommend a small business think through whether it’s better for the business and employees to collect unemployment insurance instead of the PPP loan?” he asked. Morse’s response was that, for most of their clients, the preferred course of action is to use the money to keep on as many of their employees as they can so that they can retain their workforces, get back to full operations quickly and achieve maximum PPP loan forgiveness.

However, one restauranteur in the New York tri-state area told CNBC that he is taking a different approach. After getting loan approval for $5.5 million, he says that he’s keeping the loans as an emergency stash until the business is able to reopen for good. The owner, who furloughed 650 of his 850 workers at four restaurants, plans to keep them furloughed and collecting unemployment while he pays their medical benefits. He makes the case that his strategy of holding the funds has a primary aim of keeping his family’s 70-year-old business afloat when the business is safely able to reopen and people feel comfortable sitting shoulder-to-shoulder again. “I could take people off unemployment insurance today, not have the opportunity to reopen our business, and run out of funds in 2½ months,” he said. “Yes, that’s an option, but I have an obligation to make sure this business continues for the next 70 years.”

Now that President Trump has signed a nearly $500 billion interim coronavirus bill that includes additional money for the PPP, more small business owners will have access to loan money. If you would like to discuss how to best use PPP loan proceeds, please give us a call today.