You’re Approved for Payroll Protection Program Loan Funds. Now What?

What to do after you receive your Paycheck Protection Program loan

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After a shaky rollout, you finally got your PPP loan approved and money deposited into your account. Now what?

The Payroll Protection Program is a $349 billion allocation of funds passed as part of the CARES Act, signed into law on March 27, 2020. Created to help business owners keep employees on payroll, the PPP loan is potentially forgivable money available up to $10 million. The COVID relief money can be used for payroll – no more than $100,000 annual salary per employee – as well as benefits (including paid sick leave and insurance premiums) and taxes on compensation. Up to 25% of the PPP loan may be used by the business to cover  interest, rent, utilities and interest on pre-existing loans.

But the rollout has been stressful for business owners and lenders across the country as they try to disseminate what’s required of them and what happens after approval.

Ted and Randall Browning own a pizza shop in Waco, Texas and were recently approved for their PPP loan. Ted attributes their successful approval in part to their business partner who is running the daily operations while Ted’s been navigating the legalese of the bill.

“The small business owners who have to deal with the minutiae of the PPP and run a business — it’s just impossible.”

“The small business owners who have to deal with the minutiae of the PPP and run a business — it’s just impossible.”

If you’re approved for the loan, here’s what to do.

Smart Ways to manage your PPP funds

Open a separate account for the money you’re receiving. Pay all of your eligible, forgivable expenses from this account. Keep things separate from the beginning to prevent having to document and delineate all the expenses later on.

Remember that there are limitations as to what the funds can be used for:

  1. Payroll expenses, including salary, wages, tips, commissions, paid time off, employer insurance premiums, and state and local taxes on compensation
  2. Mortgage interest, rent, or utilities but “not more than 25% of the forgiven amount may be for non-payroll costs.”

Should I rehire previously let go or furloughed employees?

Maybe.

Many business owners were forced to lay off or furlough employees when COVID-19 hit, shelter-in-place orders were given, and revenue dried up. Re-hiring these employees and keeping them on payroll for 8 weeks post-disbursement helps your business meet the eligibility requirements for forgiveness.

Rehiring employees gets money in their pockets but also keeps individuals connected to their jobs as contributing members of the workforce — important considerations in this challenging time.

What if our business is still closed or under-operating?

This is a likely reality for many.

Ted and Randall intend on ramping up delivery service with employees who are comfortable coming to work once their SBA loan money comes through. But they’re unclear on when that will be, and how they’ll give work to all their employees when they’re doing a 1/3 of normal business.

They plan to think creatively about how to get the money to their employees.

“Sure, it’s helping us, but at the end of the day the idea is to get it back to our people.” said Randall.

If I have leftover PPP money, how should I use it?

Kent Curtis is the CEO of a CDFI bank with branches across rural Colorado. He says borrowers are unlikely to have leftover relief money. Instead what he anticipates are more loans.

“We’re preparing for a second wave of loan requests. Once small business owners use up their PPP loan money, they’re going to need more. Will this money be backed by the government? Possibly, but who knows?”

“We’re preparing for a second wave of loan requests. Once small business owners use up their PPP loan money, they’re going to need more. Will this money be backed by the government? Possibly, but who knows?”

Kent notes these loan requests will be even harder to process because banks could potentially be funding them, which makes submitting a seamless PPP application before the money runs out all the more important.

But some people are expecting to have more than what’s needed to fund payroll for 2 months.

Chao He and his business partner own a mobile app development firm and plan to hire new employees.

“We may hire one or two extra people as the appropriation is pretty generous in that it essentially subsidizes up to the first 100k.”

They haven’t laid anyone off, but their current headcount is fewer than last year due to the competitive nature of the developer industry. This means their allotted PPP amount would be significantly more than the expected forgiven amount were they not to increase payroll somehow.

For now, use the money to pay employees and the other eligible expenses. While the initial additional $250 billion for PPP was blocked in the Senate, it’s expected that Congress will eventually approve more.

In the meantime, what are small business owners to do?

Kent says “Try to learn as much as you can, but understand you’ll still have limited knowledge because all of our knowledge is limited right now. That’s the true trait of a leader — to make hard decisions without all the facts and remain confident in your choices.”

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