PPP Loan Update:  Borrow Now or Wait?


Lyons Gaddis COVID-19 Alert

This Alert is one in a collection of articles created by Lyons Gaddis in our effort to get important information to our clients regarding the effect of the novel coronavirus (COVID-19) outbreak in the United States.  This Alert focuses on the new PPP Loan Program and the timing of borrowing funds. 

PPP Loan Update:  Borrow Now or Wait?

A client recently asked when they should apply for and borrow money under the Payroll Protection Plan loan program.  They run a business that is currently shut down under Colorado’s Stay-at-Home Order.  If they borrow the money now, while their business remains closed, they may have trouble spending the proceeds on forgivable expenses during the 8 weeks following loan origination, as required for full forgiveness.  They also are obligated to return to full staffing levels by June 30th in order to claim the maximum forgiveness available.

In their situation, and that of many businesses shut down or with drastically reduced operations, we just have a math problem.  Their business needs to calculate the total loan amount they expect to receive.  Next, they must estimate their ability to spend those proceeds on forgivable costs within 8 weeks from origination of the loan.  The money may be spent on:

  • Payroll costs, including benefits;
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.


How much of my loan will be forgiven?

You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

You will also owe money if you do not maintain your staff and payroll.

  • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
  • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

How can I request loan forgiveness?

You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

The SBA issued Interim Final Rules that provide a significant degree of guidance, however, there may be additional changes on the horizon so it may not be a bad idea to hold off a bit if you can.  On the other hand, if you add up your payroll cost (with your reduced staff) your mortgage cost, rent expense, and utilities, and are comfortable that you can spend all the money (with no less than 75% on payroll), maybe  you go ahead now.  The bottom line is that in order to maximize the benefits under the PPP loan program, each business must perform their own analysis of the amount of funds borrowed, the timing of borrowing and the estimated expenditures.

Attorneys in the Business and Transaction Group at Lyons Gaddis are available to advise you in relation to these loan programs and other COVID-19 related matters impacting your current and future business operations.