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Thank you very much for your valuable time. As a small business owner, I believe in the importance of a strong economy, and I feel it is only fair that I bring some key issues to your attention related to the CARES Act. I sincerely believe the intention of the Paycheck Protection Program was to save paychecks and small businesses. Unfortunately, my PPP loan has directly put my small business in danger. Please allow me to explain.
A little background about myself; My name is
Our craftspeople are highly skilled in what they do, and many have been working for us for several decades. To give a little context, we work in refineries, chemical plants, and nuclear facilities performing all types of services such excavation, concrete work, structural steel, carpentry, etc. In a normal Spring season, we would have around 125-175 employees working. However, our headcount was reduced to only 40 due to COVID-19 related sales losses (a reduction in business of around 75%).
When I first heard of the Paycheck Protection Program, I was elated. It seemed too good to be true. I immediately attempted to apply on 4/3/20, and after several days of chaos, was approved for a
Being union, this was not a struggle for our company. Unemployment money, even with the bump, falls severely short of prevailing wage. Being on unemployment also does not allow our employees to contribute to their benefit funds, and if you sit on unemployment long enough, you can even find you and your family with no health insurance. For this reason, I immediately and aggressively went after the PPP funding… knowing it would run out quickly. I cannot thank you enough for your efforts in getting the CARES Act passed. The PPP funding was a lifeline my employees desperately needed.
Why am I reaching out to you? Largely – this PPP loan has gone from a utter blessing to an extremely high-risk burden. All of the perks above, which are wonderful, come at a very high price. Please understand that as a business owner, I would do just about anything to keep my employees safe, happy, and healthy. However, if given a second chance – I am not entirely sure I would have taken the PPP funding. Under the current guidance (or lack thereof), I believe I have incidentally put my business in greater danger by having the PPP funds versus not having the funds. Please allow me to explain below why my anxiety is reaching record-breaking levels!
To summarize the “issues” with the PPP, there has been little to no guidance on the rules for forgiveness. Most companies, mine included, cannot afford to take on a loan that will not be 100% forgiven (a business needs extremely deep pockets to pay people to sit at home/contribute nothing).
The SBA set a deadline for themselves of
1) Lack of guidance on 8-week period start date.
Every attorney has a different answer; The 8 weeks start on the fund date (
How can a business plan the 8 week period of forgiveness and not over-extend themselves (pay people to do nothing and not be forgiven) if you have no idea when your 8 weeks starts and ends? Personally, I made the assumption of a
2) Cash versus accrual accounting.
There is no guidance on whether or not the 8 week forgiveness period includes incurred costs or just physical payments made (cash versus accrual). And again, every attorney and article has a different answer.
For example, I was funded with a
Payroll from week ending
If forgiveness is based on a cash basis, that provides no room for the employer to actually plan the 8 weeks. I only had 40 people working week ending
A cash basis would also screw up everyone's 8th week. If costs incurred is not the way they (SBA) go, businesses could end up over-extending themselves that last week, not realizing they won't be reimbursed for that (since the payroll physically won't be paid until the next week, the 9th week). For my business, this is another risk of about
3) If on a cash basis, union benefits are going to be a problem. Employers only pay those (cash-wise) monthly. My loan ends mid-June. I won't be able to make a payment for the June union fringes until first week of July. Again, for my company, this is another risk of about
To add to this problem, I only see one “safe” way around this problem – and that is to lay off my employees two weeks before the 8-week period is over so I don't have any union benefits falling into June. However, I can't do this, or I would be risking my headcount calculation at the same time. When you think about it, this is a complete lose-lose situation for businesses like myself.
4) 75% of Wage & Earnings made in Q1 Stipulation
Our employees are hourly. Does the 75% threshold take into account earnings or the wage amount?
This is a huge unanswered question and could cause employers to make large miscalculations.
5) Can you pay someone more money than they made in Q1?
There are some articles that are suggesting we should not be paying employees more than the congruent gross amount they made in Q1 or possibly face penalties. This makes no sense at all. No one will come back to work or agree to sit on your payroll for these weeks unless you promise them 40 hours per week (Anything less makes staying on unemployment tempting). They may not have necessarily established a perfect 40 hour schedule during Q1 (construction schedules are so volatile- especially with the weather in Q1). I pray I am not penalized for putting people on a 40 hour schedule under the PPP, even if that isn't exactly what they worked in Q1. The point of the PPP was to put people on the payroll, get them off of unemployment, and hopefully save the employer from having to do a ton of expensive rehiring when the economy eventually picks back up. For me, the risk of this question being unanswered is over
6) For forgiveness purposes and the wage/salary stipulations being atleast 75%… what if an employee has permanently left your payroll (but they were on the payroll in Quarter 1)? We occasionally hire certain people just for specialty jobs and then they move onto the next one. Will we be penalized the 75% if they don't come back to us during the 8 weeks? What if they quit in Quarter 1 and do not come back? This is obviously an unfair penalty. My business has about
7) Full time headcount
Again, this is an unanswered question and employers are unknowingly operating on dangerous assumptions. There are articles referencing that anyone working 30 hours is equal to a full time person. This will inflate many of the calculations people are using (most I assume are using total #of hours divided by 40). Getting your headcount wrong by just 10% results in a 10% reduction in forgiveness amount. This will devastate some businesses. If I calculate our headcount using all of the different ways I have been advised to by various accounting firms, I come up with a number anywhere between 105 and 146 full time employees. You get my point! I have no idea where I stand in regard to this stipulation. For Brieser, this is a risk of $500K+.
8) Forgiveness amounts
There is no guidance on what “Payroll costs” actually are. My fear is that FICA(already published as not forgivable), Workers Compensation (no guidance), and ancillary union benefits (no guidance) will not be forgivable to the employer. For my employees, this can be a cost of up to
9) Q&A #31 from SBA Interim Rules
I assume #31 was published in regard to Private Equity firms, Hedge funds, large publicly traded companies etc. However, this additional guidance is scaring many businesses away. Many are concerned they will later find out they did not qualify for the money and are wanting to either give the money back or not spend it at all. I feel the media pressured the SBA to come out with this particular updated guideline just because of a few bad eggs that made headlines. But my opinion is the point of the PPP is being missed in the midst of the chaos…. We should not be focused on who got the money that did not deserve it – Instead, we should be focused on who did not get the money that did deserve it. Workers are the only ones who suffer at the end of the day. Workers do not care if their layoff check came from the
To conclude, there are many other sticky issues that make these loans devastatingly risky, but hopefully I have given you enough to grab your attention! Please reach out with any questions – I somewhat feel like an expert when it comes to these loans and their underlying problems. Unfortunately, I eat, sleep, and breathe the risk I have taken on with the loan, and I check the SBA's website for final guidance multiple times a day. How can we be penalized (not forgiven) for making honest and necessary assumptions that turn out to be incorrect weeks after executing loan documents and spending the funds? I feel like most businesses have taken on more risk than they even realize. As it currently lies, there is a good chance there will be a large chunk of costs that won't eventually be forgiven to small businesses. This is no big deal if your employees are actually working and bringing in revenue, but paying employees to do nothing is a different story. Businesses would have been better off not taking the loan out. Like I said above, if the SBA's answers to the above questions are A) Not published immediately and/or B) Anything but lenient, these PPP loans will directly and single-handedly put companies out of business. Just from the specific issues I mentioned above, I am personally risking over
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The rule can be viewed at: https://www.regulations.gov/document?D=SBA-2020-0015-0001
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