Originally published in Kiplinger

By Bruce Willey

I feel for the small and medium business owner right now: They are like sailors facing headwinds and choppy waters of a very tough business environment, with very little visibility and the survival of their business at stake.

Many sought a lifeline in the Paycheck Protection Program (PPP) passed under the $2.2 trillion CARES Act earlier this year. But even as these forgivable loans may help keep businesses afloat and workers employed, the rules are in flux and ambiguous. Even specialist financial advisors are steering their clients as though navigating at night by the stars, rather than by precision GPS.

The banks providing the loans have asked recipients to hold off on submitting forgiveness applications, as even they try to come to terms with how it’s all supposed to work. So if you are feeling anxious that you don’t quite understand how to get your loan forgiven, know you are not alone.

Make sure you have a good tax or other financial advisor – who has experience in your particular industry –  and here are some items to discuss with them:

1. A simpler forgiveness filing: The most recent news is that the Small Business Administration has provided a simpler filing document for businesses who meet certain criteria. Ask your advisor about the PPP EZ forgiveness option if you are:

• a business owner with no employees, 
• or if you are a business owner with multiple employees who did not reduce anyone’s pay by more than 25%,
• a business owner with employees who did not have to reduce employee headcount during the pandemic or has restored the headcount by the time the forgiveness application is filed 

1. Loan repayment terms: The most recent revision by Congress was an effort to provide flexibility, but can also put borrowers into some confusing positions. For instance, the new rules allow companies to win forgiveness of their loans if they can demonstrate that 60 percent of the loan was spent on payroll over 24 weeks – through Dec. 31, 2020. This was an expansion from the much shorter 8-week window in the rules previously.

This change was aimed at helping businesses like restaurants that are only starting to open now, providing them the time to pay workers and gain forgiveness. But it also can mean that those same businesses will be applying for forgiveness at the end of the new window – which puts them into next January. Meanwhile, many signed agreements with their banks before the new rules were issued, and those loan agreements may well stipulate that they need to start paying off the loan in November

An act of Congress does not supercede a contract with your bank. If you need to take the entire loan window to achieve forgiveness, you may need to speak with your bank and get (in writing!) a waiver on paying the loan. Otherwise, you might be delinquent on repayment before your loan is even forgiven. 

1. The loan forgiveness window: You can avoid the question about the loan repayment terms if you do not need the extended forgiveness window. Assuming you’ve been keeping your books in order—which I’ve been preaching since the moment CARES passed—you should be able to determine whether you need that extra time. If you don’t, then go ahead and apply for forgiveness. There’s no need to wait only to find more new rules and stipulations waiting ahead of you.

But if you find that you do need that extra window, then take advantage of it. Again, this will depend on the industry you’re in. Restaurants and gyms are coming online much more slowly than, say, law firms or marketers.

1. Your payroll-to-loan percentages: Now that only 60% of PPP funds need to be spent on payroll, as opposed to the original 75%, there’s more leeway for the businesses that need it. The question you have to ask, and ask honestly, is do you need that extra flexibility? 

And while initially it was reported that the new 60% threshold came with a cliff—meaning if you didn’t hit the threshold you wouldn’t receive any forgiveness—the Small Business Administration and Treasury clarified recently that there would still be partial forgiveness under that threshold.

But beware: The law as written by Congress and this clarification provided by the SBA and Treasury conflict. It’s murky, and this is where good advice is critical.

• Consider whether you should take advantage of other PPP benefits: Under the latest updates, businesses that received PPP loans can now delay payment of payroll taxes, which they could not originally do under the CARES Act.

But remember that’s a delay, not forgiveness. You’re still going to have to pay that money back. As you work your way through your records, consult your advisor, and decide when to apply for forgiveness, consider whether you need to take advantage of all those benefits, or if you’ll be fine without them. 

There’s no one size fits all approach here—just because the benefit is there doesn’t mean you should take it.

1. Your long-term business needs: Part of the anxiety I hear from clients around PPP is what happens if they don’t qualify for forgiveness? And this is something every business owner who received PPP loans should be thinking about.

But the reality is likely far less scary than what many are currently imagining.

As a business owner you likely already had a plan for the year, and even when the pandemic first hit, you started thinking about what you had to do to survive. In some cases, business owners made pivots that will allow them to be even stronger on the other side of this.

But you have to zoom out for a moment and think about not just what things look like after you apply for loan forgiveness, but what it looks like in 2021 and beyond.

If you do have to pay back any portion of your PPP loan, remember that it carries only 1% interest by law. You’ll never get a loan at that rate again at any point in history. Does taking advantage of every little PPP benefit help your business the most? You may find that the forgiveness of a low-interest loan should be secondary to critical personnel decisions you need to make. Hanging onto an underperforming employee just to win forgiveness, or keeping all employees when you could just treat some of your PPP funds as a loan and stretch your cash may still be a better business decision.

It can be helpful as well, in times of uncertainty to develop contingencies. Imagine at least three scenarios that could play out. Doing so will make the future less uncertain, give you a clear path forward, and help you decide how to manage your PPP loans.

Even as you consider these items, perhaps most importantly, you need to keep running your business. I’ve written about this before, and it still holds true: Don’t let the PPP specifics distract you from keeping your business afloat. 

Let people like me, your tax and financial advisors, do the hard work. 

While it’s important to ensure you have a base understanding of PPP and the latest updates, so that you can have intelligent conversations with your advisors, let the experts steer you through the PPP forgiveness effort. And remember that you aren’t alone in this.

Bruce Willey is CEO of American Tax and Business Planning.