A look at PPP forgiveness, staying afloat in rough markets

Business owners quickly reached out to their banks to apply for the Paycheck Protection Program (PPP) loan when it became available because they needed a lifeline. The economy, in a matter of days, essentially shut down, but businesses still had expenses coming through — employees on their payroll, lease payments — and they were looking for help to get them through the short term.

“Businesses essentially went into survival mode,” says Kurt Kappa, chief lending officer at First Federal Lakewood.

Businesses awarded the PPP loan now have many questions regarding loan forgiveness and repayment. And just about every business is looking for the best way to stay above water as markets reopen and begin to recover.

Smart Business spoke with Kappa about the PPP forgiveness process and where companies should put their focus in the short term.

What should business owners understand about PPP loan forgiveness?
The sense when businesses first applied for the PPP loan was that it was free money; that as long as they use it to cover the next two and a half months of payroll, they don’t have to pay it back. That’s correct. But if the money isn’t used for payroll, it’s not fully forgivable and will require repayment.

Businesses were asking their bank how they could maximize their forgiveness because they didn’t want to come out of the downturn with more debt on their balance sheet. Many are having ongoing conversations with their CPAs about the compliance process. In the meantime, they’re essentially watching every decision they make and how those decisions might impact them 30 days down the road when they need to provide supporting documents on how they used the loans. Their banks will then submit that information to the Small Business Administration (SBA) and it will process their loan forgiveness.

There may not be answers to all the questions out there, but businesses are doing the best they can to use the tools available to navigate the uncertainty.

What will the SBA take into consideration for forgiveness? 
There are a few key considerations the SBA will look at when reviewing forgiveness. They will look at the date of disbursement for the business’s PPP loan proceeds plus the following eight-week time period. A business’s headcount and payroll will need to remain intact and an understanding of the average number of employees will be needed to determine loan forgiveness amounts. It all comes down to timing — businesses should make sure that 75 percent of loan proceeds are used for payroll expenses within eight weeks of receiving the funds and before June 30.

How should businesses prepare for loan forgiveness? 
The SBA has guidance posted on its website and updates it daily. That is the best and most accurate source of information.

However, there is one thing that’s certain: If businesses don’t have the documents requested by the SBA, their loan will not be forgiven. As companies begin to compile this information, they should reach out to their CPAs or banker for a deeper dive into how they should approach the forgiveness process.

What might the “new normal” look like for businesses?
Businesses are going to need to get more creative in every way, including how they operate. It means being proactive, leveraging technology to compensate for the inability to hold in-person meetings, and being flexible, especially with workforces that now need to work remotely. The faster businesses can adjust their approach, the more likely they are to survive.

These are unprecedented times. Companies are building an airplane as they’re flying and just about everyone is in the same situation. It’s important that companies work with partners such as bankers and CPAs to get an honest assessment of their financial, competitive and organizational situation to figure out the best path forward.

Based on preliminary guidance from the SBA as of May 5, 2020, and is subject to change.

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