“Paycheck Protection” Won’t Be Forgiven For Some Paychecks

Written by SK Ashby

The Small Business Administration (SBA) began accepting applications to have Paycheck Protection Program (PPP) loans forgiven for applicants who used most of the funds to cover the cost of payroll, but business owners aren't leaping to immediately apply because the rules of the program are still changing even now.

One of the latest changes announced by the SBA will mean that some business owners will actually be penalized if they used a different program to cover their employees and some have just had the door for forgiveness closed for good.

Any business owner who received aid from the SBA's Economic Injury Disaster Loan (EIDL) program have only just learned those loans will be deducted if they also received a Paycheck Protection loan.

Entrepreneurs who received up to $10,000 in federal grants and took a forgivable Paycheck Protection Program loan as well are in for a surprise: They won't be getting the full loan forgiveness they had hoped for.

The EIDL Advance offered $1,000 in grant money for each employee, up to $10,000. Independent contractors were also eligible for up to $1,000. [...]

[The] Small Business Association will deduct the grant from the amount of PPP forgiveness that a borrower may receive.

Further, borrowers who received EIDL Advances that were larger than the PPP loan won't be eligible for forgiveness on the paycheck protection loan, according to an Aug. 11 set of frequently asked questions issued by the SBA.

I don't know if it's fair or not to say EIDL loans will be deducted from whatever businesses would have received in forgiveness, but I don't think it's fair to announce this almost five months after the programs were created.

A business that received aid from both programs in May, for example, is only just now learning this over three months later. I assume that at least some business owners would have chosen one program over the other, rather than both, if they knew it would present a conflict. As things stand now, it's conceivable that some businesses could be on the hook for both loans with no path to forgiveness.

Businesses with the best lawyers and accountants will find ways around this, but many others won't and now they could emerge on the other side of the pandemic with even more debt than they would have had without these programs.

If it kept them in business in the meantime, it may have been worth it even if it saddled them with even more debt, but this is bad policymaking.