One Community Conversations: Payroll Protection Program

Greg Antipoff, CPA, and Pat Kenny, Financial Planner, joined us for Part 2 of our discussion about the Economic Stimulus Package. Part 2 centers around the Payroll Protection Program for small businesses. Read below for some of the most asked questions, or watch to the full conversation here

What is the PPP loan, and what has changed since it’s rollout?

PPP is the Payroll Protection Program. It is a loan designed for employers, and basically it gives employers two and a half times their average monthly payroll. So essentially gives employers a block of money to keep their employees on payroll for an eight week period. 

Banks began accepting applications on Friday (April 3rd). To their defense, they got the final rules late Thursday night. When I say late, I mean like between 10 pm and midnight. So some of them were able to accept applications on Friday, some worked through the weekend and started accepting on Monday. I’m seeing better acceptance now because the banks have had time to understand the rules a little bit, and some of the local banks who don’t necessarily have the technology resources have had the weekend to kind of put things in place. 

I just want to touch on some of the technical things that have changed throughout. So it is a loan, first and foremost. The terms of the loan are really great, though. It’s only a 1% interest rate. And you have a term of two years to pay off any portion that is not forgiven. So it’s a loan on the front end, but there are some criteria. If you meet the criteria and you pay your employees over an eight-week window, including rent and utilities, you can have a portion or all of that loan forgiven.


It seems basic that if you just do those three things: pay your payroll, pay your rent, pay your utilities, this loan will be forgiven.

Correct. I like to say we’re heading into phase two. Everybody got their initial applications in on Friday, over the weekend, or Monday. Now, what I’m getting is sort of the underwriting process where now the banks are actually responding and they’re requesting specific documentation. Once we get through that, hopefully, the loans will be funded pretty quickly. 

But yet, what you’re going to want to pay attention to in the eight weeks following the distribution of this money, is to make sure that you actually spend it on the right things. And that you actually spend it all within that timeframe. You’d hate to get stuck with any amount of money that gets converted to a loan, just because you miss something by a couple of days or a week. 

Phase two of what we’re doing for our clients is going to be actually tracking that money and making sure that it gets spent. Then around week six or seven, we’re going to look at where they are and determine if there are opportunities for us to use the rest of these funds. For instance, if you normally pay commissions or bonuses to your employees that you might be paying in a couple of weeks, if there’s money leftover, maybe we pay those now so that we can use up the remainder of our funds for this eight-week window.


How does the PPP loan compare the Economic Disaster Relief loan? As a small business, why would you do one over the other? Or can you do both?

The easy answer is you can do both, as long as you’re not using the funds for the same reason. The Economic Disaster Relief loan came out a lot sooner than the PPP. So some folks had already applied for that saying, hey, I need this money to keep my employees on board. So if you happen to use that money for employees, you can’t then take the PPP and use it for the same purpose. 

Now, there are other purposes that you could use the Economic Disaster Relief loan for. Maybe you had a decline in business and you have other ongoing expenses that you have to support that are covered by the PPP. The PPP is specifically intended for employees, but they do give you the leeway to also use that money for rent or lease. 

Most people I know are applying for both. Most people have not gotten a response on either loan, not even a confirmation.


If a retail business is only open for online sales, but the actual store is not open during this current situation, are they eligible for the PPP loan? 

Essentially, every business right now qualifies for the PPP as long as you check the box saying you’ve been affected by the COVID virus economically. It’s not so much determined on how much business you’re doing. It really depends on whether or not you’re paying your employees. 


Do employees have to actually be working, or can you just pay them what you’ve always paid them?

That’s a good question. You just have to pay them. They don’t actually have to be working. So the idea there is obviously some businesses are open. By definition of the government, they’re essential, but they’ve seen a downturn in business, so they need supplemental income to pay their employees. They qualify. 

Then for example, hair salons and barbers they’ve been forced to close their doors, they can’t even open. For this program, it gives them the option if they want to bring their employees back and pay them through payroll, they can use that money to do so.


What if someone already has gone for unemployment and then they start receiving this money? Do they then lose their unemployment? 

There’s a window. If you apply for this loan and you get approved, you have a certain amount of time when you have to bring your employees back. Because the idea is to keep everybody employed here. There’s also sort of a penalty if your employment level drops below a certain amount during this period, a portion of the loan won’t be forgiven. The idea is there is, hey, us as management, you know, maybe we’re going to pay ourselves and we’re going to lay off our hourly workers. So there’s a penalty there to say no, let’s take care of everybody. 

So for businesses, the example of hair salons. So the conversation there is that their employees have already started collecting unemployment, or at least have applied to. So they’re probably better off staying there, instead of the salon owner taking a loan, bringing them back on payroll, and then if this lasts longer than eight weeks, putting them back into the unemployment system.

They can just say, listen, we’re closed right now. The employees are being taken care of. So it’s different business by business.


If there are not any other employees, just the owners or the employees, can they still qualify for the PPP loan?

You do qualify. Self-employed and independent contractors, beginning April 10 is the date when the banks can start accepting applications for those folks. What’s not clear is whether there’s going to be a forgiveness provision on the individual business owner who’s taking one of these loans.