In the early weeks of March 2020, the Coronavirus pandemic officially reached the point where it couldn't be ignored any longer. To say that things changed from that point on – likely permanently – is certainly a bit of an understatement.
According to one recent study, more than 8.2 million cases have been confirmed across the world as of June 17, 2020. A full 2.2 million of those cases were based right here in the United States. The U.S. still has over 1.1 million active infections that it is dealing with, and that number continues to grow. While it should certainly be celebrated that we’ve seen over 900,000 recoveries, the country also reached another grim milestone with 119,000 deaths as a result of COVID-19.
When you further break things down to look at the economic impact of the pandemic, the situation is still highly concerning. Another recent study revealed that a massive 82% of all large enterprises around the world have already cut their hiring budgets dramatically. A report that was originally published in the middle of April revealed that as many as 7.5 million small businesses in the United States in particular were at risk of permanent closure if the pandemic carried on for much longer.
This, in essence, is why the Paycheck Protection Program (PPP) was born.
As the name suggests, the Paycheck Protection Program is a specific type of loan designed to provide a "direct incentive" for small businesses to keep their workers on the payroll during COVID-19, despite the fact that many businesses were located in areas with strict lock-down orders that saw them unable to even open to the public for weeks and months at a time.
Offered by the U.S. Small Business Administration (SBA), PPP loans were notable in that they would be forgiven if all employees were kept on the payroll for eight weeks after disbursement. Likewise, the money had to be used for things like rent, mortgage interest or utilities in addition to these payroll costs. All in all, the forgiveness was enticing to many, but the rules left many confused.
As COVID-19 was both unprecedented and playing out on a global scale in real-time, it's easy to see why the PPP was so popular. Not only did it see a record number of applicants almost immediately, but it actually ran out of funding in just a few days. These funds were replenished rapidly, thus getting more money into the hands of the people who needed it the most. However, even though many expected the second round of funding to be quickly depleted again, that has not been the case.
In those early days, it was seen as a welcome and necessary action from the federal government to help small business owners in particular get through these troubling times together. However, a number of recent developments have seen sentiments change for many people.
As of June 12, 2020, more than 4.5 million loans were given out as part of the PPP. All told, 5,457 different lenders distributed more than $512 billion to applicants in all 50 states. Loans that were $50,000 and under made up the vast majority, coming in at 2.9 million loans or 65% of the total number applied. Overall, the average loan size is about $112,000 - all of this according to research recently conducted by the United States Treasury.
But the important thing to note is that as of June, there is almost $1.3 billion remaining from that original total. If things don't "return to normal" relatively soon, those funds will likely be depleted – which means that a lot of people are going to be left wondering what, exactly, happens next.
Even those who participated in the program early are currently coming up on the end of that initial eight-week period. For restaurants and similar types of businesses in particular, this means that a lot of them are going to soon run out of funding before they're able to get up and running again. Even those restaurants that are currently open are probably working with limited hours and at no more than 50% capacity – thus creating a significant problem that few know how to address.
Note that there have also been a number of changes passed since the original PPP legislation that were designed to make things easier for most business owners. The Paycheck Protection Program Flexibility Act was signed into law on June 5, for example, and it immediately relaxed some of the spending requirements. Companies now have up to 24 weeks to spend their loan money and they're eligible for forgiveness if at least 60% of that money went towards actively keeping their employees on the payroll. Even if you don't meet that particular requirement, partial forgiveness is now very much a possibility.
Most experts agree, however, that this additional time doesn't really help those businesses who have already spent a large portion of their loan. The new 24-week period that is covered doesn't necessarily correspond with the amount received, which again doesn't do anything tangible for businesses that are already operating at a net loss.
Equally complicating things is that the forgiveness process itself is marked by confusion. Any loans that were created before June 5, 2020 have a two-year maturity period, for example. But loans made on or after that date have a five-year maturity period. This means that anyone who took out a PPP loan after June 5th doesn't have to repay their loan until five years after the origination date, so long as they file an application for forgiveness within ten months beyond the end of that 24-week period. People who took out loans at an earlier time feel like banks are now in an advantageous position because even though the borrower can ask for the loan to be extended, they don't actually have to do that.
All of this is to say that while the Paycheck Protection Program certainly helped those in need during an unprecedented period, there's still a lot of work left to be done. Plus, none of this addresses the most important caveat of all: the fact that the Coronavirus pandemic is still going on.
Even when the final stay-at-home order is lifted, are people going to want to fill up movie theaters and restaurants and retail stores again? Or will people be more likely to stay away out of fear for their own safety? It's far too early to tell in a lot of these places, which means that this is one topic people are going to be paying close attention to for the foreseeable future.
About Frank Jenkins Jr
Frank Jenkins Jr. CPA is the managing partner of Adams, Jenkins & Cheatham, a CPA practice based in Midlothian, VA. Frank specializes in Consulting services, tax planning, audit & assurances. "I genuinely care about our clients because I have a personal connection with them." He is active in the community and belongs to the AICPA and the VSCPA.
