What to Expect if You Received PPP Loan Funds (and if You Didn’t)

by | April 20, 2020

PPP Loan – What to Expect Next

Whether or not you received Paycheck Protection Program (PPP) Loan Funds as defined by The CARES Act or not, you need to know what to expect moving forward. For those who received PPP loan funds, you need to take action to ensure you are in compliance with the SBA requirements for loan forgiveness. If you have not yet been approved for a PPP Loan, you need to continue to prepare for what many expect to be a second round of funding from the federal government.

To help address the pressing questions surrounding these two issues, we invited Jeff Watson, a licensed attorney with more than three decades of experience related to business, legislation, and regulatory issues to share his insights and wisdom. (Note: You can watch the first interview with Jeff here and a follow-up one here.)

Watch the most recent interview between Jeff and Joe Park now.

Below are some key questions and answers shared during the interview.

Will we see additional funding for the PPP loan program?

It’s likely we’ll see a second round of funding by the end of the month. We should expect new clarifications to the PPP program from the SBA. I personally think it’s likely we’ll see a third round of funding. That’s how important this program is to rebuilding the American economy.

What role does a direct banking relationship play in helping churches, nonprofits, and small businesses receive the PPP loan approval?

You absolutely need to be in constant contact with your lender. Even with the additional funding being considered, there will not be enough for all who will apply. Otherwise, you are likely to be lost in the system.

What observations can you make from the first round of funding?

Community banks and credit unions really outpaced large and regional banks who were stunted by technology and other complexities. As a result, we should all recognize the opportunity consumers and businesses have to invest in local banks moving forward.

How should churches prepare for the second round of PPP loan funding?

Find a bank who is eligible to make these loans. Build a relationship. Actively work with a commercial lender to complete the application process. Don’t wait. Work toward this now. Be aggressive.  

Who is the forgiving authority, and how will churches apply?

The forgiveness process is buried in an SBA regulatory update that is just a couple of weeks old at this point. The lender will prepare documentation for a request to the SBA to “buy back” the loan. That is how the loan will be wiped out for the church or nonprofit.

What do I need to do right now to maximize PPP loan forgiveness?

You need to be meticulous in how you use the funds from the day it is deposited into your account. Put the money in a separate account. Only use funds for the four forgivable purposes during the designated use period.

What type of documentation do I need to have my loan forgiven?

Develop an exceptional tracking system. For every expenditure, capture your logic behind the use of those funds. For example, for interest, visit your online bank, take a screenshot of your interest statement based on current amortization, and put that in a file. When in doubt, work with your CPA to develop a tracking system that meets appropriate accounting standards.

What should churches do with housing allowances related to PPP loan funds?

If your loan calculations didn’t include it, don’t use the funds for it. If you did include it in your loan calculations, then use the funds accordingly. Keep in mind, you are still subject to the $8,333.33 per month maximum use of PPP funds for any single employee.

What does a church need to do to start the forgiveness process?

A specific form is not yet available. You should expect it to come down over the next six to eight weeks. The responsibility will fall on the bank who made the loan. Work with your lender to make it easy for them to follow how you used your funds. Consider providing a cover letter that shows a written summary of funds from deposit to use in addition to the documentation required to substantiate your use.  

What constitutes utilities?

The SBA has not yet clarified the definition. We should expect that soonFor now, stick with the known basics: electricity, telecommunications and internet, heating and cooling, water, and sewer.  

What are the FTE (full-time employees) requirements?

The SBA is looking to make sure you use the PPP loan funds to keep employees on payroll. Consider using pay stubs for employees that you had prior to COVID-19 during the eight-week period as evidence of funds use. If someone leaves and your hire another person, even if it is not for the same exact job, this qualifies as far as keeping a level FTE count as long as the hours worked are equal or greater.

How should churches communicate about these funds to their churches?

Tell the church how the funds are being used to continue to create ministry impact —even during social distancing.  

When you applied for the loans, you had to certify you were economically impacted by the uncertainty of COVID-19. What if you actually ended up in a better financial position due to maintained or increased levels of giving? Is there a clawback provision?

There is no language about a clawback provision in the legislation. The only standard was economic “uncertainty.” That is something I think we can all agree is true and will remain true for some time. However, if you are a church in this position and with a funded PPP loan, you will need to discern how God would have you to faithfully steward these funds generated through a forgiven loan. 

Is it permissible to pre-pay payroll during the eight-week use period of the PPP loan funds?

If your PPP loan funds availability have not been fully utilized toward the end of the eight-week period, consider an early partial payroll to pay the liability of the time your employees have already worked 

What other advice do you have for churches related to the use of PPP funds?

Think about how to minister through and coming out of this crisis. This is an unprecedented time of ministry opportunity, and your PPP loan funds should ensure you are able to continue to do this through social distancing. 

If you want to see more interview videos with Jeff Watson and other experts, sign up for Giving365 (Horizons’ free on-demand resource library). To access a carefully curated list of ministry resources to guide your decision-making and strategy during the Coronavirus outbreak and social distancing, please visit our regularly updated COVID-19 Resource Center.

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