The Paycheck Protection Program (PPP) is a small business loan program created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020, and subsequently reinforced by additional COVID-19 relief legislation passed in December of that year. The loan is potentially forgivable and is designed to help small businesses ensure that they can pay up to eight weeks’ worth of payroll costs as well as pay interest on mortgages, utilities, and rent. The PPP exists alongside relief measured targeted at specific industries, such as the Restaurant Revitalization Funds that are designed to support the particularly hard-hit restaurant and bar industries.
The PPP has run into some significant problems, however, with fraud, in particular, emerging as a major concern; rather than use the funds to pay and hire back workers, as they are intended for, some employers have used the money they have received from PPP loans to pay for personal expenses such as cars, housing, and other luxury items. In one such case, a New England man attempted to fake his own death to escape charges of fraud after he and an associate attempted to fraudulently claim a $500,000 PPP loan.
More recently, it was announced that the PPP program was nearly out of funds available for financing forgivable loans. This announcement came several weeks ahead of the May 31 deadline for PPP loan applications, and as a result, most new loan applications would not be considered. Now, the millions of potential applicants are scrambling in an effort to secure loans from the few overwhelmed lenders still offering them, while hundreds of thousands of people who had already submitted applications – some of them several weeks ago – are left wondering about the status of their PPP loan applications.
Under the PPP, roughly 3.3 million loans out of a total of 5.2 million loans made last year have been forgiven, while $81.5 billion worth of loans is under review with $159.1 billion available for applications for loan forgiveness.
For those with applications pending, or those hoping to submit applications for loan forgiveness, there are some important eligibility criteria that will determine whether or not an application will be approved.
Specifically, for a loan to be totally forgiven, employers must have maintained both the same number of employees and the same level of compensation for those employees – including wages, bonuses and benefits – and must have spent at least 60 percent of the loan money on payroll costs. In addition, the remainder of the money must have been spent on eligible expenses such as operating costs, mortgage payments, utilities, personal protective equipment for employees, and property damage that resulted from civil unrest and was not covered by insurance.
Important to note is that if employers spent most, but not all, of their loan money on eligible expenses they can still have the loan partially forgiven.
Eli Fuhrman is a contributing writer for The National Interest.