PPP Loan

Why Some Businesses Are Hesitant To Apply For PPP Loan Forgiveness 

This week, the Small Business Administration opened up their forgiveness portal for the Paycheck Protection Program (PPP) loans. The CARES Act initially made these loans available for small businesses who were struggling to stay afloat during the pandemic. The Act went into effect in the beginning of April, and since has dealt out more than 5 million approved loans which equated to $525 billion. 

To qualify, small businesses had to show that at least 60% of the loan would be going towards payroll costs for employees. The repayment terms of these loans are also relatively casual in terms of federal loans, as most firms will only pay an interest rate of 1% and have at least a six-month grace period before needing to start payments. Loans that were given before June 5th must be repaid in two years while those dealt out after have five years. 

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Even with all of these seemingly attractive qualities, accountants nationwide are noting that many small businesses are choosing to sit out this round of PPP loans after the initial round of loans began going more towards large corporations and wealthier employers who didn’t really need the financial support as badly. 

Additionally, many small businesses are still asking Congress the same question in regards to these loans with no real answer: will expenses covered by these PPP loans be deductible on future tax returns? Ann Kummer is a Certified Public Accountant in New York who claims to be giving a lot of her clients the advice to wait before applying for a federal loan. 

“My advice to all of these clients is that you don’t want to be the first to rush into the forgiveness process. Things will probably continue to change, do you really want to be the guinea pig?”

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Many small businesses feel the same way, especially considering so much change has already occurred in terms of the pandemic and its impact on the economy. There’s still no word from Washington D.C. on what the next Covid-19 relief bill will look like either, something many Americans have yet again been waiting for. 

According to the IRS, forgiveness of the loan will be tax-free, but business owners who take out a PPP loan will not be able to write off expenses that in any other context would be deemed deductible if they use the PPP funds to cover that cost. However, many Congress members disagree with the IRS’ claims and want small businesses to be able to deduct those costs, making this one of the many points of contention that’s delaying the release of another relief bill. 

Overall, many business experts and accountants nation-wide are urging their clients to hold off and wait in terms of applying for one of these PPP forgiveness loans. While many businesses are suffering now, depending on how much this loan program changes the damage could become a lot worse for them down the line. 

Experts recommend that all businesses maintain a separate business account for all of their loan proceeds so they’re able to see exactly what they’re receiving and when they are spending it. Additionally all businesses should maintain any and all documents that show how their funding has been spent throughout the duration of the pandemic. This way, no matter how much the pandemic and the forgiveness program changes in the coming months, businesses will have a formal record of spending and receiving.

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Small Business working during COVID-19

Small Businesses Demand Greater Financial Protections During Coronavirus Pandemic

As the many small businesses of America struggle to stay afloat during this pandemic that requires everyone to stay inside, the Small Business Administration (SBA) is working to ensure that they’re as protected as possible to survive this economic crisis. The SBA recently issued a new set of guidelines regarding their loan system that’s meant to make it less likely for big businesses to access the next round of funding that the US government deals out as a part of its small business relief program.

After the first round of small business payments were dealt out by the government, many individuals expressed their outrage online that so many large companies in the US were able to access the resources and thus take it away from actual small businesses that need the money. There are currently still thousands of small businesses across the country that haven’t received any sort of financial protections from the government, while hundreds of millions of dollars in loans have already been given to larger corporations. 

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According to the SBA, any companies now applying for coronavirus relief funding, referred to as the Paycheck Protection Program or PPP, must certify that the loans are necessary, and the only option for the business in terms of financial compensation. 

“Borrowers still must certify in good faith that their PPP loan request is necessary. It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification,”  the SBA said.

The initial round of funding dealt out $350 billion to various companies throughout the US. For the second round, an additional $310 billion will be given out to hopefully new small businesses that need it, however, industry executives aren’t expecting this fund to last that long, as the first round of PPP payments was finished after a little over a week. 

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Helping small businesses stay alive was actually president Trump’s administration’s main goal when creating the $2 trillion-plus economic response fund for the coronavirus pandemic. During the initial round of funding is when small businesses became angry, however,  as large restaurant and hotel companies were able to apply for loans up to $10 million, and a majority of the ones that did were companies that were worth more than $100 million in stock. 

JPMorgan Chase and Bank of America have been two of the bigger corporations dealing with the ins and outs of these small business loans for most companies throughout the country, and thus they’re also receiving the most criticism for the first round of payments. Small businesses are claiming that this is a classic example of corporations looking out for one another while disregarding smaller businesses struggling to survive, a claim that JPMorgan has denied.

In the new SBA guidelines, the Administration is appearing to allow banks to rely on the small business claims exclusively as evidence for why they need the loan. However, the guidelines also state that any bank that dealt out a PPP loan to a larger public company in the initial round of payments can avoid any sort of repercussions by returning the relief loans within the next two weeks so the money can be redistributed.  

Hopefully these new guidelines help the millions of small businesses across the US survive to see this pandemic end and thrive once we return to a world of normal local retail therapy.