SCOTTSDALE, Ariz.–There’s a looming “Paycheck Protection Program (PPP) nightmare” ahead, according to at least one person.
While nearly all the focus on the PPP to date has been with problems with submitting applications and with the companies that have been receiving funds, Ron Shevlin, managing director of fintech research with Cornerstone Advisors, wrote, “…The headaches for small businesses and banks have only just begun.”
Under the PPP, the loans basically become grants if the company receiving the funds uses 75% of the money for payroll and to maintain headcount.
Writing on the company’s Snark Tank blog, Shevlin pointed to the Treasury guidelines for PPP that say loan forgiveness specify, “Loan amounts will be forgiven as long as: 1) Loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the eight-week period after the loan is made; and 2) Employee and compensation levels are maintained.”
Added Shevlin, “Easy-peasy right? Maybe not.”
The Challenges
According to Shevlin, small business borrowers will face challenges regarding:
- Computing the forgiveness amount. The American Institute of CPAs published a five-step guide instructing PPP borrowers how to calculate their loan forgiveness…”Don’t think there won’t be plenty of confusion—and lots of phone calls to the banks.”
- Tracking allowable expenses. Many small businesses, he said, have no technology support for their accounting operations.
- Filing taxes. “Although the CARES Act states that forgiven PPP loans will not be considered as income, there are complications.”
For financial institutions, Shevlin said the headaches include:
- Servicing the non-forgiven portion of loans
- Debt categorization
- Audits
- Customer/member service
Fintech to the Rescue?
Shevlin said one silver lining may be found in the fact many fintech providers are stepping up to stave off the nightmare, with at least 20 companies working on ways to report the data required for forgiveness back to the bank.
Shevlin’s full commentary can be found here.