Less than two weeks after small businesses across the country were first able to apply for potentially forgivable loans through the $349 billion Paycheck Protection Program, or PPP–the U.S. Small Business Administration ran out of its allotted funds. The agency, which administers the PPP, shut down its application process.
That leaves many small and medium sized business owners wondering what they will do to meet their expenses. Congress is currently considering another round of funds for the PPP, but when and if Congress will sign off on additional funding is still not certain. If you were not able to get a PPP loan, we recommend that you continue to put together the required documentation, prepare the calculations and fill out a PPP loan application so you are ready to submit to an SBA lender once (and if) the PPP obtains additional funding. Take the time now to find an SBA lender that would accept your application. We do anticipate that Congress will authorize more funding to the PPP soon so it would be prudent for you to be ready to apply with a completed loan application.
SBA lenders are awaiting to hear back whether applicants will agree to sign their loan agreements and accept the approved funds. SBA lenders have 10 days to fund the loans once they receive SBA approval. The incentive of PPP loans is to convert the loan into an employer grant to cover primarily payroll costs, however some employers will decide not to sign their loan agreement because their business is essentially closed and choose not to pay their employees for not working. Should an employer conclude not to proceed with the PPP loan, a better option for that employer may be to take advantage of the Employer Retention Credit program for retaining some of their staff while laying off some of their employees. Those employees will be able to collect unemployment benefits including the additional $600 per week funded by the federal government. If an employer chooses to not go ahead with the loan, the SBA lender may be able to lend those funds to additional applicants or it may get released back to SBA for the next application in the queue.
For employers who have received notification of an approved PPP loan or awaiting word on approval, IRS has issued additional guidance on the deferral of employer’s share of the (6.2%) Social Security taxes, beginning on the date of The CARES Act enactment, March 27 thru December 31, 2020. Self-employeds are also eligible to defer one half of the self-employment taxes. The payment of the deferred payroll taxes is (50%) payable on December 31, 2021, with the remainder payable on December 31, 2022. The additional guidance explains an employer may take advantage of the PPP loan and the employer payroll tax deferral until the SBA lender issues a decision on the forgiveness portion of the PPP loan. The time frame begins on March 27th(enactment date), includes the 8 weeks (56 days) coverage by the funded PPP loan, plus the time SBA lender takes (up to 60 days) to approve the forgiveness amount. For example, an employer may be able to defer a portion of their payroll taxes beginning on March 27 until early to mid-August on a PPP loan funded on April 20. For more information, here is the link to IRS FAQs.