If you thought the funds from the Paycheck Protection Program (PPP) were too good to be true—you may be right.
“It’s not as simple or as easy as it was presented,” Brad Mewes, a California-based industry financial consultant who recently launched a new business to help aid small business owners with issues like this, COVID19loans.org, says. “Forgiveness will not be as easy as it was portrayed.”
The loans will be forgiven, but only if all of the stipulations are met, so Mewes advises small business owners to read the fine print and keep diligent records. On average, he says that within the first hour, he sees $15,000-$70,000 of errors in his clients’ loan application process.
Mewes shares pieces of advice for shop owners that are using PPP funds.
What should shop owners that have taken advantage of the PPP be on the lookout for?
There are two areas. The first is that you have to prepare an accounting package to submit to your lender that documents all the ways that you’ve spent the money, which must be in accordance with the CARES Act and within the time period. We’ve found that 14 documents total are needed. It’s tedious and time consuming.
The second part is the logistics of all of it. Banks are woefully understaffed and not prepared to deal with this type of work. They disperse loans—they’re not auditors, which is what they’re being asked to do right now. From a processing standpoint, the sheer number of applications out there, from a processing standpoint makes it complex. Add on the fact that this is a huge bill that was passed in record time, which means there are ambiguities and mistakes. The Treasury and SBA continue to issue guidance and the rules continue to change. If you’re doing this on your own, you have to stay on top of all of this.
How can business owners ensure that they get their money back?
Pay attention. This is a loan until it’s not. In order for it not to be, the borrower first has to submit an accounting package to the bank and that needs to be approved. After it’s approved by the bank, it needs to be submitted and approved by the SBA. The best way to make sure this approval happens is through clear documentation that would be easy to explain to someone that’s not in your business every day. Keep it simple and clear.
There’s also a very important definition in the CARES Act that many may glaze over: occurred and paid. The payments have to have occurred and be paid within that 8-week period. Depending on payroll timing, it may or may not work, so pay attention.
What are some common reasons for not getting the loan forgiven?
There are some tripwires in the forgiveness package. Head count and the average wages that you’re paying your employees need to stay the same. If you have people that aren’t working right now, if you’ve furloughed or laid them off, or you have people working for a reduced salary, that could impact your loan forgiveness.
Do I need to have spent all of the money within the anytime period allotted or can I hang out to the money?
The intent is the law, this is an employment act. This was a bill that was designed to benefit employees. The intent is to spend money on payroll, generally speaking, if you have to make the decision, you want to consider erring on spending employees. The intent here, this is not a small business owner bailout, it’s a bailout for employees. I liken it to the great american prebate, if they take the paint company and follow rules, they don’t have to pay money. If you follow the rules, you won’t have to pay money back. There’s concern that since they’re unaware of rules or bad record keeping that they will be in for a rude surprise. That’s what we want to help our people to avoid.
What advice would you have to ensure the entire loan received is forgiven?
The most important thing is proper planning. Have someone that’s an expert in the area guide you through the process. It’s like doing your taxes, most of us can do it on our own, but many hire an expert.
It’s also important to keep up with the changing rules.Those that are unaware of the rules or have bad record keeping will be in for a rude surprise and that’s what we want to avoid.