Paycheck Protection Program Runs Out of Money

The Paycheck Protection Program (PPP) has run out of money.

The PPP is a forgivable loan program available to family child care provides who suffered financially from the COVID crisis. It was a source of tax-free money that helped thousands of family child care providers and other businesses. The PPP is a program of the Small Business Administration (SBA).

If your application has already been submitted to the SBA, you will still likely to receive money. If your application has not been submitted, it is unlikely that it will be approved. Contact your lender to see where your application is in this process.

At this time we do not know if Congress will add any additional money to the PPP.

Note: The SBA has said that there might still be money available through lenders who focus on lending to businesses run by women, minorities and other under served communities. If you believe you might still be eligible, contact your local bank or a Community Development Financial Institution (CDFI).

Forgiveness

If you have received money from the PPP, you have up to 24 weeks to spend it. I strongly recommend that you wait at least 2.5 months before you apply for forgiveness. By doing so you will be able to say that you spent 100% of the money on payroll for yourself. You can show that you spent money on payroll by transferring money from one account to another, or writing yourself a check. You can do this in one lump sum or spread it out over a number of weeks. You can even leave it in the same account. In all cases, make a note to yourself that this money is for "payroll."

Apply for forgiveness through the same lender you received the money. Use the SBA forgiveness Form 3508S. This is a simple one page form that does not require you to submit documentation of how you spent the money. Some lenders may require such documentation. There were earlier versions of this form that do not apply to you. Some lenders may not be ready to accept forgiveness application forms because they are too busy processing loan applications. You have 10 months to apply for forgiveness after receiving the money, so don't worry about this in the short run.

Once you fill out the forgiveness application form, you will be forgiven! You won't have to pay it back. Many providers have worried that they will have to pay this money back. No! Don't worry about this. The PPP money you received is not taxable income and you won't have to pay it back! For more information on how to fill out the forgiveness application form, see my article, "How to Spend PPP Money and Ask for Forgiveness."

Second Draw

Because of the end of the funding for the PPP, it is no longer possible to apply for the First or Second Draw. However, there is a lot of confusion around the Second Draw. SBA rules clearly state that providers must spend all of money from the First Draw before they can receive the Second Draw. In addition, providers should not receive money from the Second Draw until at least weeks have passed after receiving the First Draw. Although there is no clear SBA rule that specifically says this, this is my best interpretation of the rule after hearing from lenders and regional SBA officers.

The problem is that some providers have received money from the Second Draw before 8 weeks had passed after receiving the First Draw. What should you do if you are in this situation? Contact your lender and ask them to contact their local SBA representative to find out what you should do next. It is not clear if you will be able to get some or all of your First Draw or Second Draw forgiven. Because of this uncertainty, you may not want to spend any more of the First Draw or Second Draw money until you can get further clarification. If you have not yet received the Second Draw, but you do receive it before 8 weeks have passed since receiving the First Draw, you may not want to accept the money until you get clarification from your lender. If you can't reach your lender, I would recommend that you reject the money. This problem was created by overzealous lenders who pushed through Second Draw applications too quickly.

Economic Injury Disaster Loan Program

The end of funding for the PPP does not affect the SBA Economic Injury Disaster Loan (EIDL) program. You may still apply for a 3.75% interest loan payable back over 30 years. This loan is not forgivable. You must pay it back.

Thanks to Cyndi Cunningham from Minnesota for help with this article.

Tom Copeland - www.tomcopelandblog.com

Image Credit: Small Business Administration