Mark Pestronk
Q: I understand that, under the new law signed by the president in late December, my agency will be eligible for another Paycheck Protection Program loan. But at the moment, I am more concerned about whether my existing loan will be forgiven. The last I heard was that we had until Dec. 31, 2020, to hire back all employees that we had prepandemic and that, if we failed to do so, we would have to repay at least part of the loan. Obviously, I couldn't rehire most of the staff, so will I be stuck having to repay the loan?
A: It is still true that many businesses will have to show that they hired everyone back by Dec. 31 in order to obtain full forgiveness. However, there are exceptions, and you may well be able to take advantage of them.
First, the rehiring requirement no longer applies to smaller loans. In October, the Small Business Administration (SBA)issued a new rule waiving the rehiring requirement (and the salary-reduction penalty) for loans of $50,000 or less. The SBA simultaneously issued a short-form forgiveness application (Form 3508S) that does not even ask about your head count or payroll as of Dec. 31.
So, if your loan was for $50,000 or less, you have nothing to worry about, as long as you spent the loan proceeds on employee compensation (including owner or sole proprietor compensation up to $20,833) and other permitted purposes, such as rent and utilities. You will still need to show or keep proof of these expenses.
Incidentally, the new law that took effect in late December greatly simplifies the forgiveness application for loans of up to $150,000, but it does not waive or modify the rehiring requirement or Dec. 31 deadline. My guess is that many in Congress mistakenly thought that the law contained this waiver, as it was part of various bills introduced previously.
Second, there are several other exceptions, but they are probably not relevant: For example, you don't have to count: (a) employees who declined an offer to come back to work, as long as you keep records and report the employee's decision to the state unemployment agency, or (b) employees whom you fired for cause.
Third, and most interestingly, you didn't have to restore your head count if you were unable to do so "due to compliance with requirements established or guidance issued by ... the Centers for Disease Control and Prevention ... related to the maintenance of standards for ...customer safety requirement related to Covid-19."
For brevity, I have quoted just the key words of the law. They show that you could possibly make a case that you were unable to operate at the pre-Covid level because of guidance issued by the CDC in regards to your clients; i.e., "Do not travel" and "Avoid cruise ship travel."
Although the law may have been intended to focus on safety requirements inside your business, such as social distancing, it ought to be interpreted as I have explained. I have learned that ASTA agrees and is trying to get written confirmation from the government.