The Small Business Administration’s Paycheck Protection Program offers much-needed emergency financing for companies affected by the COVID-related economic downturn. However, the program has introduced numerous questions and concerns among business owners, many of whom are now concerned about available financing, future audits, loan forgiveness and more.
The Small Business Administration’s Paycheck Protection Program offers much-needed emergency financing for companies affected by the COVID-related economic downturn. However, the program has introduced numerous questions and concerns among business owners, many of whom are now concerned about available financing, future audits, loan forgiveness and more.
There is particular concern among construction industry companies. “Construction, more than any other sector, was able to get the PPP,” according to Ken Simonson, chief economist for the AGC of America, who spoke during a ConstructConnect forecast webinar in early May. “Now there are a lot of questions of whether firms are exposing themselves to audits.”
Five top questions on PPP
1. Can I still apply for a PPP loan?
Yes. The SBA announced it resumed accepting PPP applications from lenders April 27 and is still open to applications. While the first round of PPP financing ($349 billion) was exhausted in two weeks, the second round ($310 billion) continues to be available and could be for some time.
“Much to my surprise, demand in this round went down,” says Marco Terry, managing partner for Commercial Capital LLC. “I suspect that many folks don’t feel comfortable with the requirement to use a large portion for payroll.”
2. What are the payroll requirements?
PPP loans can be fully forgiven, provided that 75 percent of the loan goes to payroll. This labor requirement is particularly challenging for construction firms, says AGC’s Simonson.
“It’s different in construction, where headcount varies project to project—sometimes week to week,” he says. Contractors are concerned “they may not wind up qualifying for the rather stringent requirements for maintaining headcount.”
3. I received a loan. Will I be audited?
“The Treasury said that the SBA will audit every loan over $2 million,” says Terry. “I don’t know how many loans meet that criteria, but this would be challenging to enforce. Audits take time, resources and money. The Treasury also said that companies that took under $2 million will be assumed to have acted in good faith.”
Terry notes that “everyone that has a loan should be prepared for an audit, just in case. It’s good business sense and it is not difficult. It means owners must keep accurate and up to date accounting, receipts (especially for large expenses), and above all payroll/payroll tax information,” he says.
4. Why is the SBA asking some companies to return PPP loans?
The Treasury Department and SBA asked large, publicly traded companies to consider returning PPP loans, noting that the program was intended to provide small business relief.
“As I understand it, this applies only to large businesses that have access to other funding options—e.g. capital markets, investment bankers, etc.,” says Terry.
5. How can I apply for loan forgiveness?
On May 15, the SBA issued guidance on loan forgiveness and posted the application. “Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease,” according to the SBA.