Experts Break Down the Paycheck Protection Program Loans
For small businesses with fewer than 500 employees, one of the most attractive loans to come from the Coronavirus Aid, Relief, and Economic Security (CARES) Act is the Small Business Administration’s Paycheck Protection Program (PPP).
If required conditions are met, a PPP loan can be converted into a tax-free grant. Seth Perretta and Malcolm Slee, partners with Groom Law Group, recently discussed the CARES Act and the various loans available to small businesses in a G&A Partners webinar titled “The Cares Act and What it Means for Your Business.”
“The idea is that the [PPP] loan is for small businesses that are not generating revenue and are cash strapped,” Perretta says. “Typically, these businesses rely on revenue to pay their payroll. If a business uses the loan to pay for wages and benefits, then the government is not going to come back and make you pay it back. The government is going to forgive it, effectively converting the loan into a grant.”
But there are two things that Perretta warns can keep employers from being able to convert their PPP loan into a grant: reducing headcount or reducing and employee’s pay by more than 25%.