Another PPP Loan Update

Confusion and frustration have dominated the conversation about the PPP loan process in the past few weeks. Perhaps you’ve seen the heated response to Shake Shake returning their loan or Matt’s own candid comments to Washingtonian about the situation in DC. We’ve been working round the clock with clients and through our partnership with RAMW  to ensure everyone has access to the relief they need and understands the next steps of this constantly evolving process.

Below is a summary of where we are right now, and what you should be thinking about moving forward, depending on your loan situation. Of course, this is merely a framework - consult with your own financial team for proper guidance, or get in touch at our CARES Act Assistance page for more specific advice.

If you received the PPP loan, the determination to keep the loan will largely come down to working capital on hand and your expectation of being able to achieve forgiveness.   

• We highly recommend putting the money from the PPP loan into a separate bank account and only spending it on qualified expenses (payroll, rent, and utilities, generally). If the loan is spent, make sure to have an accurate accounting of each dollar spent.

• Determine if you need an immediate cash infusion from PPP funds. This is determined by examining your working capital, cash on hand, money in the bank, operating status and sales.

• When to return the loan:

• If you are in a strong working capital position and are currently closed, without plans to bring staff back at full force within the timeframe currently required by the PPP rules, be careful about your spending decisions with the PPP loan funds. You may find that the best course of action is to monitor how the PPP rules evolve over the next several weeks, rather than rushing to spend the money in a fashion that is not consistent with the long term success of your business. If the PPP rules do not change in a beneficial manner and you are not able to open up and bring your staff back by June 30th, you may be better off simply returning the money as you are not able to spend it in accordance with the rules.

• When to keep the loan:

  • If you are operating at a high volume on delivery and takeout (more than 50% of prior year period sales) and have some money in the bank then PPP is likely highly beneficial for you, even if you have only a limited amount of employees on payroll and can only get partial forgiveness.  Whatever you have forgiven is of benefit to you--you were still going to employ the employees and pay rent, regardless of the PPP.

  • If you’re out of money and open or closed, but still have the expectation that you will be bringing back a full workforce eventually, the PPP is likely an outstanding program to help provide you with the working capital you need to keep going. 

  • If you don’t have cash right now, this is the most realistic way to get working capital. It is the only real source of working capital that is available.

• While a small portion of the PPP funds can be used for rent and utilities, you should be focused on rent abatement conversations with your landlords at this time, particularly if you are shut down. The PPP loan rules do not allow you to achieve forgiveness without spending the vast majority of PPP funds on payroll, and you should be looking for a sustainable long term structure for success that works for your restaurant, your employees, and your landlord. Borrowing short term money to pay rent during the shutdown should not be your default if you do not expect PPP forgiveness, especially in an environment where landlords are able to adjust mortgage terms and are obligated to pass the savings through to tenants.

• Remember - any PPP funds that are not spent can be returned. You should not spend wastefully.

If you didn’t get the PPP loan in the first round, there are a few steps that should be taken immediately. 

• Connect with your bank now. If we learned anything from the first round of applications, it is that the money will go quickly. If you aren’t hearing back from your main bank at all, look into non traditional lenders that aren’t banks. Click here for lender recommendations from SBA.

• If you submitted an application and it was denied, make sure whoever you worked with before is going to effectively execute your loan. You should not assume that your loan application will automatically be resubmitted, and you should take every step to ensure that it is resubmitted.

• Make sure you are connecting with a person at your bank during this process. You need to look for a firm answer. Call and email until you speak with someone directly. 

PPP vs. Employee Retention Credit (ERC)  

• The ERC might be a better option for any business that has a decent-sized working capital reserve that is either operating at a limited ongoing level (less than 50% of ongoing sales) or currently dormant. The PPP loan might work better for businesses who are either about to run out of money, or who already ran out of it.

• What is the ERC?

• The Employee Retention Credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000. You can get access to this credit by reducing upcoming deposits or requesting an advance credit on Form 7200, Advance of Employer Credits Due To COVID-19. Click here for Form 7200, and for more information.

• You CANNOT utilize both PPP and ERC, so make sure to weigh the pros and the cons on the front end.

As ever, we’ll be communicating regularly as more information becomes available. There’s every indication that needed fixes to the PPP won’t come until Congress is back in session in May. Until then, we’re here for you as we all continue to weather this unprecedented storm.