SBA Loan Scenarios

Many business owners and not for profits are scrambling to apply for the Paycheck Protection Program Loan (PPP). The application process just recently opened, but of course, along with our “Tax Code Roulette” theme for this season, changes have been made almost daily.


On April 7th, the SBA provided new guidance to banks and lenders stating the once the SBA approves the PPP loan request, the first distribution to the business must be provided within ten days of the application approval. The last disbursement of the loan must be paid out within eight weeks of the approval. For businesses, the eight-week period of spending the loan begins with the first disbursement.
Treasury Secretary Steven Mnuchin is looking to provide an additional $250 billion for small business aid. This information was shared on April 7th and is said to be voted on as early as April 9th by the senate.

There are multiple questions surrounding the PPP Loan. We are aware that this is a time-sensitive situation for many. At this time, we are not 100% sure what the best option is for business owners; it all depends on individual conditions. Were you prepared for this? How large are your payroll and other operating expenses? Is your business able to pivot quickly to adapt to the circumstances? There are so many questions and unknowns that we may not know for sure what the best mode of an attack is until July. If we have businesses wait to secure loans, then it may be too late to acquire funds.


These business decisions are not easy and hold much stress. We know we are in the trenches with you! There is no right or wrong answer. Each outcome is based on factors that are out of everyone’s control (when can you reopen and if/when the available funds run out.) Since none of us control these factors, it is best to decide what you think is the best for you, your business, and your employees.


  1. Apply for the PPP loan now. Receive the money sooner rather than later and spend it during the next eight weeks. If you receive the loan by April 10th, by June 5th, the eight weeks are up, and you need to continue to make full payroll until June 30th to obtain loan forgiveness eligibility. If you remain open after the eight weeks, then it works, but most likely to get full forgiveness, you will be paying employees at some point with no work to do.
  2. Wait to apply. When you are ready to reopen, apply for the PPP Loan. This is an ideal situation, but the risks for funds to run out is there. No one knows how long the funds will last or if more will be secured later. If you wait and the funds run out, then you may be eligible for a 50% credit of wages paid during the second quarter of up to $5,000 per employee. Once again, the details on this are complicated and clear a mud.

Worse Case Scenarios:

  1. You apply and receive the loans in a week. You spend the funds on eligible costs during the eight-week forgiveness period, most of which were made while the office was closed. For some reason (maybe because of inadequate documentation and tracking), you do not receive loan forgiveness. You are now on the hook to repay the loan in two years, while your staff could have been on unemployment.
  2. You receive the loan in a week, spend the funds on eligible costs during the eight-week forgiveness period. The loan ends in mid-June, and you still need to pay people through the end of the month, even if your business is not open. Your out of pocket expenses are those that remain after the loan runs out. Not too bad unless your employees could have received more while on unemployment.
  3. Apply and get the funds, keep employees on unemployment, and do not use most of the funds until after the eight-week forgiveness period. You end up with a 1% interest loan for two years to help pay wages when you do reopen. (Note: you must use at least 75% of the loan for payroll within eight weeks of receiving the first payment to be eligible for loan forgiveness plus other requirements). This is not a free hand out of money, but if for some reason you are not able to reopen right away, it does provide you with some working capital.
  4. You wait for the loan, and when you do apply, it is not available. You then look into the federal credit of $5,000 per employee.

We get it, no one likes to think of the worst-case scenarios, but in this instance, we do. Number 1 is not too great and is probably the worst out of all the available options. The others are not terrible, but they are not as ideal as having eight weeks of payroll covered and forgiven. Some factors are simply out of our control; we are not psychics to know what the best strategy is in the end, but we are advisors, and we can help measure what the values are at the end of each scenario.


The best we can do is help measure the various outcomes and to guide you through making the best decision for you, your business, and your employees.


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