Nothing comes for free in the land of the free. The U.S. Small Business Administration (SBA) announced that business owners who have received both the Paycheck Protection Program (PPP) loan and the Economic Injury Disaster Loan (EIDL) Advance will face having the Advance deducted from their PPP loan forgiveness amount.
Over the second and third quarters of the fiscal year, the government offered federal aid to small businesses and entrepreneurs with the promise of forgiveness if the loan applicants utilized the funds according to standards stipulated with PPP.
However, if some people didn’t read the fine print, they’re in for a surprise. If business owners received a forgivable loan from the PPP, developed through the CARES Act, in addition to federal grants of up to $10,000, then it is possible that the loan will not be forgiven in full.
It’s a twisted bait and switch in which the government has made the rules as they go. Many small business owners and independent contractors received grants through the EIDL Advance program. The program granted $1,000 per employee.
There were no restrictions on small business owners to only apply to either the EIDL Advance program or the PPP. As a result, entrepreneurs applied for both. The PPP offered borrowers loan forgiveness as long as 60 percent of the funds were distributed to rent, payroll and business-related expenses.
Now it’s being announced that forgiveness will be deducted by the amount of the EIDL Advance the borrower received. Not only that, but if the EIDL Advance was larger than the PPP loan, then the borrower will have to pay back the PPP loan in full.
This guideline was set as recent as August 11 by the SBA. A telltale sign that stipulations have not been thoroughly thought out, but are being created on the whim.
At one point, those who borrowed PPP loans before June 5 were required to pay them back within two years, whereas those who received loans after June 5 have five years to repay.
It’s ridiculous that the standards are not being applied across the board. But, then again, there’s binding contractual agreements that have to be considered.
Those with the knowledge, privilege and access to tax professionals are already collecting the paperwork needed to request loan forgiveness. The best advice that is being given to business owners is to stay on top of the evolving changes surrounding federal funding and forgiveness because it’s bound to change again.
