While the second round of the Payroll Protection Program (PPP) reached considerably more small businesses, business owners still have some difficult decisions to make in the next eight weeks. In general, the PPP starts out as a loan and can be forgiven—i.e., turned into a grant—if 75% of the funds are used to cover payroll costs over the eight-week period beginning from the origination date of the loan.
As a business owner, do you choose to remain closed for a few more weeks so that you’re able to pay your employees and qualify for loan forgiveness, or do you open up as soon as possible to get money coming in the door since you’ve been shuttered the last six weeks? Our advice is to save your business. While the PPP was designed to help keep staff employed, what good is having staff if your business fails in three months because of low volume?
You could open your doors and see only one-third of the volume you need to make ends meet. Furthermore, no one knows if the coronavirus will have a “second wave” of infections, and how quickly people will rush to be in crowded places. It may sound harsh, but given the unemployment rates, you will be able to find workers when you need them. Plus, with high unemployment, that could also mean consumers aren’t spending.
At worst, your PPP loan remains a loan at 1% interest, payable over two years. It should cost you a little over $4,000 in interest for a $200,000 loan. It’s also not all or nothing. You could choose to bring back managers or select members of the full-time staff. If you bring back 20% of your staff at reduced hours and use the loan for payroll costs, 20% of the loan should be forgiven, with the rest due at the stated loan terms.
Furthermore, the Small Business Administration is rapidly approaching a time when banks will need firm guidance on forgiveness terms for the first round of loans. Being the program came from the government, the government can change the terms of the loan. For example, the SBA hasn’t released official guidance on whether bonuses paid to employees who return to work will be a covered payroll expense.
To make the decision more complicated, you may have filed for unemployment for your staff. They’re making around $300 from the state of Georgia, an extra $600 from the federal government, and they can earn up to $299 doing small jobs for your business. Potentially, you have employees making more on unemployment than they did while working. Now that you have a PPP loan, if you call them back to work, and they refuse to come, your employees lose the extra $600 in federally funded unemployment benefits.
No one said being a business owner was easy. You’re very likely facing difficult decisions for your future and the future of your employees. We recommend working with a business adviser to take a look at all of the best possible uses for your PPP funds. If you have questions regarding the best use of your loan, the experts at Henssler Financial will be glad to help: