By my nature, I’m not much of a borrower. With the exception of a mortgage, I don’t have any debt to speak of. No car payments and a single credit card with no balance. I simply don’t like the feeling of being on the hook to someone else. The current pandemic, however, has changed my small business significantly: projects are smaller, less lucrative, and further apart, resulting in about a 30-40% overall reduction in business.
Enter the Paycheck Protection Program. The PPP supposedly offers forgiveness of the loan if used for specific purposes, in specific proportions. The guidelines for PPP loan forgiveness specify that “Loan amounts will be forgiven as long as: 1) Loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and 2) Employee and compensation levels are maintained.”
The initial rollout of the PPP was mired in confusion, misinformation and general ham-handedness. My bank punted my application to the second round, where the website crashed on the first day of funding on April 27. However, I recently received notice of approval from my bank, and that they would be sending me the loan agreement for my signature.
In my adult life, I’ve never signed a loan agreement that didn’t require a payback, and this makes me uneasy. Given the initial blundering, I ponder what the forgiveness application process will look like. I know that forgiveness calculations will be based on how businesses spend their money within eight weeks of receipt, and that there are now only a few weeks until the first businesses will have to report their spending to SBA.
What happens if your forgiveness application is denied? Ignore the relatively low interest rate (1%) for a minute. Given the relatively short repayment terms of the loan, borrowers of larger sums could be looking at some ugly-thick monthly payments.
How long will the forgiveness determination take? If you’re late to the party, you may have to start repaying the loan before the determination is made. Banks are are going to face some major headaches when it comes to servicing the non-forgiven portion of loans. Add PPP loan forgiveness questions, issues, disputes, and problems to the mortgage and credit card deferment calls already pouring in to banks’ call centers, and it’s easy to see how this could turn into a major hassle for everyone involved.
What about audits? Treasury Secretary Mnuchin has announced that all loans over $2 million will be subjected to audits. A later announcement hinted that all PPP loans would be subject to an audit. Who’s going to do that? The SBA? Banks?
Given the issues during the rollout, I have no reason to believe that this won’t turn out poorly for the millions of folks who most desperately need the help. What do other small business owners think?