Within the next week or so, thousands of small companies are going to be applying for loans — and possible loan forgiveness — under the Paycheck Protection Program or PPP that’s part of the $2 trillion in federal funding approved under the CARES Act.
I’ve been studying the PPP since the first details began to trickle out and my takeaway is that it is the most far-reaching effort to stabilize America’s small businesses I’ve seen in my lifetime.
It represents an appropriate and dramatic shift from the 2008 bailout, where banks and financial institutions got injections of government capital to stabilize the lending sector. Just about every business owner I know is grappling with uncertainty about future revenues and trying to figure out how to operate efficiently and steer through the vast unknown.
Given the proliferation of webinars, fact sheets and chamber of commerce briefing papers on PPP, I’m not going to repeat the details in this column, although I do expect many small- to medium-sized businesses and a number of nonprofits on the Central Coast to file for PPP assistance.
But as a small business owner, I do have a unique perspective on the process. Here are my takeaways:
• This is where your support team is going to earn its pay. Your attorney, your CPA and other advisers are going to have to come up with articles of incorporation, bylaws and three years of tax returns quickly and do it in many cases while operating from a place where the records are not easily available. Hopefully, all of your corporate filings are current and you can quickly get your hands on monthly payrolls, rent or mortgage payments and utility bills — those are key areas for determining loan amounts.
• Your relationship with your banker is going to be key. The actual application is likely to be a relatively simple form generated by the U.S. Treasury. But it is your bank and banker that will collect other paperwork and manage the lending process. There will be judgment calls to be made and priorities to be set and that’s where the relationship will matter as banks have to weigh the credit worthiness of each borrower and how much of a loan is appropriate.
• This process will be arbitrary by definition. Every business reflects the character of its founder, owner and corporate culture. There is a financial signature to every business that may or may not check the boxes of the PPP. Be prepared for surprises — both on the downside and the upside — as you navigate the process.
• There may be limits to loan forgiveness. Because we can’t forecast even the short-term future right now, it’s hard to say what will happen to your payrolls and how many full-time employees you’ll be able to retain over the next months, compared to Feb. 15, just one of the benchmark dates for determining how much you can borrow and how much might be forgiven. Also, if the program is wildly popular, forgiveness may not fully apply to rent or mortgage interest, according to what I’ve been able to read.
• Finally, you will be giving up a lot of information. Tax returns, both corporate and personal, that are usual just between you and the IRS and your banker, will be handled by a wider number of government agencies. Your financial statements will likely get viewed by a bigger group, particularly as congressional oversight kicks in.
The great American dream has been that a person with a lot of drive and limited education can build a business and raise a family, operate with a lot of independence and keep government interference to a minimum.
As the owner of a company with a built-in exemption from regulation of our news content under the First Amendment, I feel the value of that independence in my bones. So the great unknown may not just be how your business will survive the coronavirus pandemic — with our without assistance from the PPP.
The bigger questions may be these: What does your business look like and how does it operate once the economy moves on to what’s next as recovery takes hold.
• Contact Editor Henry Dubroff at [email protected]