We Got the Money… Now What? (Commentary)

In my last column, I explained the Paycheck Protection Program (PPP) loan plan and offered suggestions on how to apply and obtain funding. When I wrote that article, I could not have imagined that financial institutions would deploy $350 billion in less than two weeks. 

Thanks to Congress authorizing a second round of funding, most of the businesses that applied in those first two weeks obtained their money. If you are one of those companies that obtained a PPP loan, I’m sure you have spent a lot of time thinking about how to properly manage the funds to maximize forgiveness. I have advised all of my clients to deposit their PPP loans into a separate account to be used only for qualifying expenses. I encouraged them to make weekly or monthly transfers, equal to the amounts they spent on qualifying expenses, from their PPP account into their operating accounts. 

Following my advice would provide a simple and easy check and balance for all of their PPP funds. My goal was to help them create a clean audit trail for anyone who may review how the funds were used when they apply for loan forgiveness. If you did not separate your PPP funds into a different account, it doesn’t mean your loan will not be forgiven. However, it does mean that you will need to keep very detailed records of how every penny of the PPP loan proceeds were used.

I have spoken with many business owners who received PPP loans. The vast majority of them are determined to use the funds as intended. Unfortunately, there are some who see these funds as “free money.” They plan to use the money to buy new equipment, trucks, real estate and more. In one case, the borrower said they were going to buy a boat and take a vacation to Florida. These folks are going to be very disappointed when it’s time to seek forgiveness of their loans. The Small Business Administration (SBA) has been very clear that these funds were to be used only according to their guidelines. Any variance from approved expenses likely will be disqualified and those borrowers will have to repay the entire loan. In some cases, they may even face penalties or worse for misappropriating those funds.

On the other hand, those who used their PPP funds appropriately should have no problem obtaining maximum forgiveness. Especially now that Congress has expanded the time period to utilize the funds. Those appropriate uses included covering employee payroll and benefits, rent/lease payments, utilities, interest on capital equipment loans obtained prior to February 15 and more. Ultimately, those of you who obtained PPP loans should see improved cash flow, regardless of how you used the proceeds, as a result of this program.

Meanwhile, keep meticulous records of how you use the funds and, even if you receive 100 percent forgiveness, don’t rush to spend the excess cash. If we’ve learned anything in the wake of the COVID-19 pandemic and now the destructive riots and looting that have sprung up in the last week, it’s that our economy, our businesses and our health can change in an instant. As such, we should all be a bit more intentional in planning for the unexpected. Retaining some cash for a rainy day is always a great idea.