Now I have 200k in the bank where otherwise I would have had 100k. In a sense isn't this going into the owners pocket?
Some companies are definitely up from the program, others are way down, depending on length of shutdown and how hard their industry was hit. But really, the intent of all the government interventions taken together seems to have been to bring everyone back to even. Obviously the speed of the whole thing did open up some areas of abuse though.
Then the maximum loan you would have qualified for would have been $20,833 and you'd be able to get about 80% (plus applicable utility/rent/mortgages up to potentially 100%) forgiven.
So, $16-21k of free money with currently unclear tax implications. Nothing to sneeze at but it's nothing insane either.
You have to apply for the loan from a lender (typically a major bank, they handled a large percentage of PPP loans), that will approve your loan or not. The process of that - properly - requires providing financial information about your business and its condition.
If you lie about anything during the before screening or after (when seeking forgiveness), you've committed bank fraud.
If you didn't end up needing the loan, you're liable for paying it back. The lender will make a determination on your forgiveness based on the financials you have to present to attempt to qualify.
There's a giant paper trail for all of this related to your taxes (IRS), financial statements, bank accounts and employee salaries.
Again keep in mind this is a loan. You apply for loan forgiveness after the fact and must substantiate that forgiveness; you may or may not be granted that forgiveness.
You will need to be ready to present full financial statements for the year. The fraud will leap right off the page in your scenario (pocketing an amount equal to the total payroll and then seeking forgiveness).
Here are some of the key conditions for the PPP money:
- You have to substantiate your need for the loan. Then if you apply for loan forgiveness you have to demonstrate that you qualify for loan forgiveness, that you meet the requirements. The lender makes a determination on your loan forgiveness.
- It's based on your average monthly payroll cost for 2019. You can receive up to 2.5 times that amount, meant to cover roughly 8-10 weeks.
- It can go to payroll. 60% must go to this. You may not include contractors in this figure. You must maintain 75% of the prior salary levels.
- The remainder can go to a select few things including rent, mortgage interest, utilities.
- It's limited to a 24 week span of time, in which the forgiveness applies.
I don't believe there is a necessity requirement on the forgiveness, only on the original funding. And the government assumes any company that received less than 2 million in funding meets this requirement.
(from the treasury FAQ) Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request? Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates,20 received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.
Did some businesses end up not needing the money? Yes, sure. But there were weeks of uncertainty and unknown closure times. The effects on the economy are still unknown really. I don’t think anyone should be punished from taking money just in case, and luckily they were able to make it. States are shutting down again, so who knows.