“Think fast. Make mistakes” is one of the few sayings from my days at Joseph B. Cohan & Associates that would not run afoul of the contributor deadlines. And that is the major lesson of the passage and implementation effort of the Paycheck Protection Plan, the portion of last week’s Coronavirus Aid, Relief, and Economic Security (CARES) Act most relevant to small and not so small businesses.
Don’t Worry About Assigning Blame
One of the most lamentable thing about the culture of JBC was that when something went wrong, the biggest priority was to argue about who was to blame to establish that it was not your fault, especially if it was. I found the most effective way to get off that and onto a solution was to blame somebody who was not there anymore. So I suggest that we should all agree that this perfect storm is the fault of Ronald Reagan and Lyndon Johnson. You can vary the proportions based on your ideology.
PPP conceptually allows a business or not-for-profit to borrow 2.5 times average monthly payroll costs, pretty broadly defined. The money can be spent on “payroll costs”, rent, interest and utilities. The loan terms and requirements are very liberal and some, most or all of the loan may be forgivable.
The program will be implemented by banks following rules laid down by the Small Business Administration.
There are three sets of rules that are interrelated which causes some confusion. How much you can borrow is an interesting thing to ponder, but at that end of the day it is going to be up to your bank. It is a sweet deal, so get as much as they will give you.
What you can spend it on is also important, but if you keep it in a separate account and use it for things that a reasonable person would think were payroll costs, rent, interest and utilities you should not have to worry about the US Marshall showing up to take you away.
How much is forgivable is the real rub. You are working on a shorter clock and there is a cloud of uncertainty surrounding payroll costs. You don’t want to be spending money that you think is forgivable and have it turn out not to be. You want that nailed down before the eight week clock starts. The only people who might be less concerned about that are those who are certain their corporation or LLC will go under if they don’t get this lifeline. It is non-recourse, so there is that.
Banks Are Not Ready
As best I can tell here is what it is like at the banks.
Except it is all being done on the phone, because of, you know, social distancing. Where is George Bailey when we need him?
Somebody forwarded a message from a community bank, that sums the situation up pretty well…….Read More>>