As businesses scrambled to get a loan under the Paycheck Protection Program (“PPP”) that was created under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), they must now decide how to use those proceeds so that they are both consistent with the law and maximize loan forgiveness.
If after getting the loan, you don’t really need the money consider giving it back, because if you really don’t need the money, you might not have been eligible in the first place. The law says that you have to certify “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.” The SBA recently said that “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” So with that guidance alone, you have to decide if you need the money. If you decide you don’t need the money and don’t want to risk violating the law, the SBA has created a “limited safe-harbor” that says you can payback the loan by May 7, 2020 and rest assured that you have not violated the law.
If you decide to keep the money, here is a step-by-step guide to preserving your ability for maximum forgiveness based upon what we know today.
First, put the money in a separate account so that you can track every dollar spent. You can only use the money for certain “Allowable Uses” including: