Almost one week ago, the Paycheck Protection Program (PPP) created under the CARES Act was launched by the Small Business Administration and banks across the country. The rollout of this program was bumpy to say the least. On short notice and with little guidance from the government, many lenders were left scrambling to update the process of accepting applications and forced to delay their launch of the program beyond the April 3rd date. Borrowers were filled with concern wondering if the $349 billion appropriated to the program would be enough to cover the tidal wave of applications submitted by small businesses across the country in the wake of the COVID-19 pandemic.

The SBA has now approved over 100,000 loans with hundreds of thousands still awaiting approval. Funds are starting to be disbursed to small businesses across the country and we begin to enter the next phase of the PPP. The original Act stipulated, and was further clarified through FAQs released April 8, that the all important eight-week period to use the money provided by the loan begins on the date the lender makes the first disbursement of PPP funds to the borrower. The government also clarified that PPP lenders must make the first disbursement of the loan within ten calendar days from the date of loan approval. The eight weeks following receipt of PPP funds by the borrower will be a critical time for small businesses participating in the loan program which at this point, may require an altered payroll cycle to capture all payroll costs during the covered period.

The law and all guidance issued to date make very clear that to receive forgiveness of the loan, borrowers must put the funds to use only in connection with the allowed expenses provided under the act.  The allowed uses of the PPP funds include:

  1. Payroll Costs (including health insurance and paid sick/family/medical leave)
  2. Payments of business mortgage interest (not principal)
  3. Rent
  4. Utilities; and
  5. Interest on debt obligations incurred before February 15, 2020

As with most items that come out of Washington DC, the devil is in the details regarding the potential for loan forgiveness. The Act requires borrowers to apply for loan forgiveness after the conclusion of the eight-week period following receipt of PPP funds. Additionally, the Act is riddled with reductions and qualifiers on applicants requesting forgiveness of PPP loans. It will be critical for borrowers to understand and apply these rules during the eight-week period following receipt of PPP funds to maximize any potential loan forgiveness. Please consult your BMSS advisor for any questions you may have.

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