Five Important Warnings As The Paycheck Protection Program Opens Back Up

After passing new stimulus legislation this week, Congress is set to add $310 billion to the Paycheck Protection Program (PPP). The second round of applications will officially open soon. And whether you’re waiting on an already submitted application or you’re itching to apply, here are five things to remember as you get ready for PPP to open back up. 

1) Be prepared 

While $310B seems like a lot of money (who am I kidding, it is a lot of money), we saw the last $349B run out within two weeks. And that’s without all of the banks starting on time and many of the FinTech companies not being allowed to participate. So, don’t sleep on this if you really need the money (as a lot of you do), especially if you are self-employed, an independent contractor or a freelancer who got a late start on applying. 

You can prepare by determining which lender you’ll be applying to and what you’ll need to provide. Unfortunately requirements differ from lender to lender, but here are some of the most common items lenders require. 

For companies with employees: 

• Tax Form 940 or 943 (Agriculture) from 2019, if filed OR
• 2019 Payroll processor records including gross salaries and wages similar to those produced by acceptable payroll providers such as ADP, Paycom, SAP, Ceridian, Intuit
  INTU
  /Quickbooks, Paylocity, Workday
  WDAY
  , Paychex
  PAYX
  
• 2020 Tax form 941 or Payroll processor records for the period between Feb 14-29, 2020

For sole proprietors or self-employed without employees

• 1040 Schedule C, if filed for 2019 OR
• Draft 1040 Schedule C for 2019 if not filed
• Income and Expenses (Profit & Loss Statement)

For independent contractors: 

• Form 1099-MISC for 2019, for services rendered as an independent contractor

2) Watch what you sign 

As the most recent funding bill was being negotiated, U.S. Senator Marco Rubio (R-FL) claimed the Small Business Committee which he chairs will use subpoena power to identify anyone who gave a false certification of the loan. He said that businesses applying for a PPP loan must certify that they’ve been harmed by the crisis and need the PPP Loan to operate. Additionally, he claimed any company with revenue to cover operations isn’t eligible. 

The problem with these statements is that you don’t have to certify to either of those things. According to the SBA’s final application, you certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” I’d be hard pressed to name any small business that doesn’t face current economic uncertainty in the face of a global pandemic and a nation that, for the most part, is shut down. 

You also certify that the “funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule.” I don’t see how that translates into “any company with revenue to cover operations isn’t eligible.” That has never been stated before this tweet, as evidenced by 71 Publicly Traded Companies getting PPP funding the first round and institutions like Harvard getting stimulus money. 

All this shows that CARES Act programs continue to be surrounded by confusion, uncertainty and conflicting information. The SBA provided additional guidance for PPP in an FAQ document just this morning. Answer 17 says that “borrowers and lenders may rely on the laws, rules, and guidance available to them at the time of relevant application.” Additionally, answer 31 still uses the vague certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” Although it does add “it’s unlikely that any publicly traded company with substantial market value and access to capital markets will be able to make the required certification in good faith.” 

In the end, just conduct your due diligence when signing and certifying the loans.

3) Funds from this program may block help from other programs

The confusion deepens when we consider that the government really hasn’t clarified how all of the new CARES Act provisions will relate to one another. The EIDL advances that were promised within three days— originally estimated at $10,000 and since cut to $1,000/employee — are finally coming through. Additionally, this week a lot of state unemployment programs opened up giving access to independent contractors, freelancers and self-employed. But especially for those business owners, we don’t know exactly how these benefits will interact with each other. 

Previous guidance stated that EIDL and PPP loans must be used for different expenses in order for the PPP to be forgivable. But since the EIDL and PPP funding is coming at the same time, business owners will have to be careful about double counting expenses for the same funds. This is especially critical when 75% of PPP loan proceeds need to be used for payroll in order to be forgiven. 

Also it’s important to remember if you intend to use the Employee Retention Credit, you can’t take the PPP loan at all. 

It will take time to straighten out all the conflicting provisions of this program, especially when it comes to loan forgiveness and deducting expenses. Things are likely to get messy. So just do the best you can to retain good records under the latest guidance. 

4) You don’t have to go through your bank 

Many of you have run into problems applying either because your bank wasn’t up and running yet or your bank wasn’t accepting applications at all. Congress has opened up the application process to FinTech companies as well, so you can use them to apply too. I’ve created a list here.  Some companies are queueing up applications for once the funding is officially passed. 

Just remember that while you don’t have to apply through your bank, you shouldn’t submit multiple applications. Regulations state very clearly that you can’t have two PPP loans. 

5) This likely won’t be the last time this happens

Like the last round, this money will likely go fast. Many experts expect these funds to be exhausted within a week or so. What does that mean? Get your documents in order, and be ready to apply again if you get locked out of this round. You’ll likely need quite a bit of patience, which I know is hard given the current chaos and the desperate need for help. I’ll continue to update you as we get more information. 

In case you missed any other insights to the Federal Loan programs you can find them here: 

Getting Cash For Your Small Business Through The CARES Act

Frequently Asked Questions On Small Business Loans In Coronavirus Relief CARES Act

How to Calculate Payroll Costs For Your Paycheck Protection Loan 

Banks and Fintech Companies Accepting Paycheck Protection Loan Applications From New and Non-Bank Customers 

What the self-employed and independent contractors need to know about updated Paycheck Protection Program Regulations 

Self-Employed and Struggling? How to Choose Between Unemployment and the Paycheck Protection Program