Written by Frank Lopez
As local coronavirus infection rates climb higher, the federal government has been ramping up its efforts to keep small businesses afloat through federal stimulus packages, one of the most notable being the Paycheck Protection Program (PPP).
Following certain conditions, the loans could be fully forgiven. Borrowers would only have to pay a 1% interest rate on unforgiven portions.
While this money could be a godsend for businesses facing economic insecurity, there could still be challenges for borrowers in meeting requirements to get the loans fully forgiven.
The Business Journal got word on some of the challenging aspects of emergency funding from Cassidy Jakovickas, president and CEO of MBS Accountancy Corp. in Fresno. He said business owners should be fully aware of what they are signing up for with a PPP loan.
“These PPP funds basically created a business environment where owners would make decisions that they normally wouldn’t make,” Jakovickas said. “If your revenues are down significantly, you would never hire employees back, but because of the way the PPP loan was designed — if you’re a restaurant, a dentist or a hotel — you don’t have any revenue coming in and you don’t have anything for these people to do.”
This situation set up an environment where businesses need funding but they cant use it in the way it was intended because a business is entirely or partially shut down.
Because the rules, guidelines and applications for federal loans are ever fluid, and changing day by day, it makes it difficult to stay familiar with all the details.
Jakovickas said he is aware of workers not wanting to come back to work because they are making more money collecting unemployment benefits.
However, Treasury Secretary Steven Mnuchin said that workers that reject an offer to go back to work by an employer could stand to lose their unemployment benefits.
Businesses must restore payroll levels to what they were before the COVID-19 crisis by June 30, and there could be a potential reduction of forgiveness if employees receive a pay cut.
According to cloud-based human resources software company Zenefits, there are more pitfalls to the PPP program, especially for businesses that use contractors. The funds can also not be used to pay back bridge loans that might have helped a business stay afloat before federal dollars started to flow. There’s also the chance that employers might have to institute more layoffs at the end of the eight-week covered period.
Though we are in unprecedented times, Jakovickas is stressing to businesses to keep making normal businesses decisions as if there were no ongoing pandemic.
“You have to do some shifting to take advantage of opportunities, but always do what makes sense for your business. Treat PPP as a loan. If it gets forgiven, that’s a bonus, but start with the mindset that this is a loan. If something changes or goes different, this is something you have to pay back.”