PAYCHECK PROTECTION PROGRAM FIRST, PINK SLIPS LAST: WHAT SMALL BUSINESSES SHOULD DO NOW

A main, stated, goal of the CARES Act is to stem the tide of unemployment claims. Small employers (500 employees or fewer) should be resorting to the Small Business Paycheck Protection Program (PPP) first and it should lay off or terminate its employees last. There are practical reasons.

Apply for Small Business Relief First

It’s hard to re-start a business that has fired nearly everyone. You’ve changed the relationship with your employees. They’ve found out there was something you could have done, but didn’t, to save their jobs and income. There is now a massive trust-gap with returning employees (if they return). New people need to be trained, returning people will need time to adjust back to working. If you’ve been shut down for one month, two months, three months or more, you’ve got to “fire up the line” and restart the business. That’s not always easy. You may have known and unknown startup costs that, if not properly capitalized, will sink the ship in the harbor, especially if commercial credit markets constrict. There’s plenty of data that says it’s less expensive to retain and repair than to fire and hire.

Lay off, Furlough, and Pink-slip Your Employees Last

While unemployment benefits were also expanded under the CARES Act, unemployment insurance should be a safety-net of last resort. Why? There are lots of reasons: it’s slow and bogged down, it doesn’t compensate employees to the level of continued employment, and it’s risky. In Michigan, a finding of intentional fraud or misrepresentation lands you with a liability of four (4) times the amount of the overpayment, plus interest. And the State of Michigan has been caught using and abusing UIA penalties. And there may be employer liability for failing to properly document the correct termination date.

Paycheck Protection Program Loans

Why not put that institutional wisdom to work, and keep that payroll going during the crisis, especially with a Small Business Administration-insured Paycheck Protection Program (PPP) loan from a financial institution?

The terms are better than anything the commercial credit market can offer:

  • The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll).
  • Loan payments are deferred for six months.
  • No collateral or personal guarantees are required.
  • Neither the government nor lenders will charge small businesses any fees.
  • Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
  • This loan has a maturity of 2 years and an interest rate of .5%.

You can complete a Paycheck Protection Program (PPP) Sample Application Form to see what documents you’ll need to apply.

Most Commercial Banks that offer more conventional SBA-insured loans are participating in the program.

Get Help

Call us to help you work through the application materials. 248-595-8617