Things to consider when deciding to take PPP funds


As small businesses begin to receive hoped-for approval for PPP loans, a new dilemma has emerged: should they accept the funds?  With an uncertain future for many NYC-area businesses—particularly those in retail, food service, wellness, and other customer-facing businesses—deciding to accept the loan requires a thorough look at your business forecasts and the PPP loan terms.

A key feature of the PPP funding is full or partial forgiveness of the loan based on spending the proceeds as explained below while maintaining or restoring headcount and salary levels at pre-crisis levels. These targets may be difficult to achieve for some businesses whose core operations are shut down or limited. However, the terms for any portions of the loan that are not forgivable are relatively borrower-friendly, so even recipients who may not be able to spend the full amounts as planned in the given period may wish to consider the PPP a low-cost form of financing.

  • The PPP terms dictate that funds are to be spent on payroll, rent, mortgage and utility payments. Full loan forgiveness is based on:

    • (a) spending on these items within 8 weeks of the loan being distributed

    • (b) using at least 75% of total spending for payroll

    • (c) maintaining or restoring headcount (full time equivalents) at pre-crisis levels. For recipients who have already furloughed or terminated employees, they have until June 30 to restore lost headcount. 

    • (d) Not reducing salaries and wages by more than 25% for any employee that made less than $100,000 annualized

  • For recipients that don’t meet the above requirements, partial forgiveness is available. The portion of PPP funding not forgiven converts to a loan, at 1% interest for 2 years, with no payment for the first six months. Importantly, there is no personal guarantee or collateral associated with the loan or pre-payment penalties or fees.

  • Unspent PPP funds that convert to loans may thus potentially represent low-cost funding to help the business continue to meet expenses and begin to rebuild. Recipients should consider:

    • Productive ways of re-deploying staffing that may be sitting idle. Are there projects, business lines, clients, and internal processes that can be tackled by employees whose day-to-day roles have diminished?

    • The tradeoff of payroll cost of maintaining headcount vs. re-hiring and training new workers

    • Ultimately, whether using the funds now can drive revenue and is critical to your business’s longevity or if it’s better to hit pause on certain areas of your business to conserve funding

  • This is a highly personal decision based on each individual business owner’s outlook, attitude toward debt and assessment of the various potential risks and opportunities. We urge businesses to discuss funding considerations and other issues with your Score mentor, or Request a Mentor.

  • Clients who elect to receive the PPP funds should manage and monitor funds closely; see Advice to PPP Recipients