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Clarity Needed on PPP Loan Forgiveness

As we continue to grapple with the challenges and uncertainty around the COVID-19 pandemic, the Paycheck Protection Program (PPP) has proven to be a lifeline for small businesses across the country. It has provided needed funds to pay employees and keep small businesses afloat, but it hasn’t come without some level of confusion and a host of questions.

Recent clarity from the Treasury Department provides certainty around whether or not a PPP loan can be forgiven if a laid-off employee is offered their job, but opts to decline to return to work. By providing a written offer to the employee, employers won’t see their chances at forgiveness reduced, thus giving needed flexibility for businesses who are navigating this challenging reality.

This is an important clarification, but other questions remain for the PPP, and that’s why PADGETT BUSINESS SERICES®, along with other organizations like AICPA and the National Federation of Independent Businesses, is asking the Treasury to provide additional clarity and relief for our small business clients.

To date, Padgett has assisted 889 small business clients in receiving more than $58 million in PPP loans with an average amount of approximately $65,200 per loan. This is a testament to the dedication of our franchisees across the country to step up and help support our clients during this time of need.

Businesses with fewer than 50 employees are being forced to make difficult choices. New social distancing requirements and varying guidelines by state to retrofit workplaces to accommodate this “new normal” can mean fewer employees, smaller groups of customers and increased capital costs. Plus, most of our clients have been closed for nearly two months, and they’re now facing accumulated fixed costs like rent or utilities.

As such, these small businesses are finding themselves hamstrung by the 75-25 regulatory standard that mandates only 25 percent of the loan can be used to address those investments or fixed costs with the remainder allocated for employee salaries.

Compounding this problem is that the eight-week payout period simply doesn’t match up with the reality on the ground. One of the challenges many of these businesses face is the discrepancies in when different parts of the country plan to re-open. For instance, while the economy is slowly beginning to open in Georgia and Florida, California recently announced plans to extend its shelter-in-place program while some of its higher education institutions intend to remain online during the fall.

As of now, the clock starts on the eight weeks when a small business receives its loan, but if the state or region they operate in is still dealing with an outbreak or a lockdown, it’s not feasible to ask them to adhere to the guidelines put in place. Many of these small businesses only have one location, tying their success to one geographic area. If that area is impacted by an outbreak or state and local restrictions, through no fault of their own they are automatically being disqualified from loan forgiveness even if they allocate 75 percent of the loan to rehiring employees.

This is why Padgett is asking policymakers to provide an exception for small businesses with fewer than 50 employees to both the 75-25 rule, as well as the eight-week payout rule. By shifting to a 50-50 split, it gives these businesses greater flexibility to address pressing costs and needs without hurting their chances of securing loan forgiveness. It also is important for the eight-week payout period to begin when the appropriate local or state leadership determines it is safe and legal for a business to reopen in a particular area, rather than upon receipt of the loan.

Fortunately, Reps. Dean Philips (D-MN) and Chip Roy (R-TX) have introduced bipartisan legislation that would loosen loan forgiveness rules for any expenses that extend beyond the allotted eight weeks. We are optimistic this policy change will be addressed quickly.

The Paycheck Protection Program is helping small businesses stay alive during one of the worst economic crises our nation has faced, but we know more work needs to be done to help our clients and small businesses across the country. Our clients should know that Padgett is actively engaged in seeing these important clarifications and changes so they can have the resources and flexibility needed to serve their customers and provide for their employees.