Needless to say, the last few weeks have been utterly chaotic for employers. Aside from dealing with the existential threat of a 100-year pandemic and the confusion around the Families First Coronavirus Response Act, small businesses are trying to understand the 800+ page, $2.3 trillion CARES Act—which includes the Paycheck Protection Program (PPP).
For businesses that have successfully navigated the PPP loan application race and received news from their lender that their loan was approved, the reward is the loan proceeds. However, with this reward comes tremendous uncertainty on what happens next. Loan recipients will have to pivot their concerns from maximizing their PPP loan amount to maximizing PPP loan forgiveness.
In seeking PPP loan forgiveness, though, businesses are confronted with the threat of criminal penalties for misrepresentation and false certifications under the Small Business Act. Compliance measures must be implemented now—before funds are received or disbursed—as loan proceeds must be used within eight weeks of receiving the loan. In addition, good practices and procedures will help businesses streamline their application process for PPP loan forgiveness.
As an initial matter, small business loan recipients must be cognizant of the PPP provisions that can reduce the amount of forgiveness. In particular:
The following is a checklist of best practices and considerations we recommend businesses follow with regard to PPP loans:
Once you receive the loan, keep PPP loan proceeds in a separate bank account to avoid co-mingling with other funds. This helps track exactly how funds are used.
CARES and the PPP continue to be an ever-changing landscape, often with apparent contradictions between the language of the CARES Act and the SBA's or Treasury Department's interpretations of it. This alert is current as of the information available, but we strongly suggest you reach out to us for the most up-to-date guidance.