Although it was plagued with issues and money seemed scarce, some small businesses in the jewelry industry were able to secure loans from the Paycheck Protection Program (“PPP”) through their banks. If your business was one of the lucky ones to obtain a loan, you now have to make decisions about how to spend that money.
Congress included this CARES act provision to help companies retain or reinstate employees. Some businesses have questioned whether it makes sense to spend the PPP loan money on payroll expenses when businesses are under mandatory closure orders and aren’t able to have employees come to work. The PPP loan does allow for money to be spent on expenditures other than payroll, such as rent, mortgage payments, or utilities. However, businesses should be aware that Congress intended the money made available through this loan to go towards employee wages, salaries, and benefits. In order to be eligible for loan forgiveness, companies must keep (or restore) workers on their payrolls for an eight-week period after the loan is granted and the businesses can only use the loan for specified purposes. At least 75% of funds should be used for payroll expenses if the business is aiming for forgiveness.
Some businesses have asked what would happen if an employee does not want to return to work because they are currently receiving more money from unemployment insurance than their standard wages. In most states, a refusal to return to work will disqualify that employee from receiving future unemployment benefits.
Businesses will need to submit a request for forgiveness to the lender that services their loan. The request must include documents verifying employees and pay rates, as well as what the loan money was used for. Certainly, a business could make the decision that a better use of the money for them would be to use it to pay rent, utilities, or mortgage payments, which is allowed under the loan program. However, that money will not be forgivable, and will be converted to a two-year loan at 1% interest. Appropriate use of the PPP money is a decision that rests with the business owner. However, businesses should be aware that there are likely to be audits and enforcement efforts down the line to ensure that PPP money was spent compliantly.
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While the current business outlook remains challenging, there are many organizations out there advocating for small businesses and making sure that future government relief efforts work for them. JVC will continue to do the work of leading and joining advocacy efforts to ensure that businesses in our industry get the help they need.