Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Friday, May 8, 2020

Some Small Businesses That Got Aid Fear the Rules Too Much to Spend It

PPPThe federal government's recent small business loan program to assist during the coronavirus pandemic appears to be a welcome reprieve, but the rules that allow the loans to be forgiven outright may be too stringent. What was meant as a lifeline to employers and employees alike, the Paycheck Protection Program was created to assist in payroll costs, but instead may create more stress for its recipients.

Under the program’s rules, George Evageliou, founder of a Brooklyn custom woodworking company, has eight weeks from the day he receives the cash to spend it. The clock started April 14, but he cannot bring his employees back while New York City is still relatively closed. If after the 8 weeks up and the city is still shut down, he will again have to lay off his 16 workers.

Many of the small businesses that received the loans are sitting on the money, unsure about whether and how to spend it. A number of the owners do not see the point in bringing back employees while business is so slow, and others believe the eight week deadline to spend three-quarters of the loan is far too short. The Treasury Department and the Small Business Administration has clearly defined the restriction: for the loan to be forgivable, businesses have to spend at least 75% of it on payroll. If not, the borrower will pay interest of 1% on any portion of the loan that is not forgiven.

Accounts, lenders, and lawyers alike appear to be mystified by the ambiguous wording of the Program. As such, they are giving tentative advice to clients and are anxiously waiting further instruction from the Small Business Association and Treasury Department.

See Stacy CowleyEmily Flitter and Some Small Businesses That Got Aid Fear the Rules Too Much to Spend It, New York Times, May 2, 2020.

Special thanks to Matthew Bogin, (Esq., Bogin Law) for bringing this article to my attention.


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