The federal government has responded to the crisis our small businesses face by passing several bills and enacting programs such as the CARES Act, EIDL, SBA Loans, and PPP. The Paycheck Protection Program or PPP provides $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. Small businesses choosing to avail themselves of this critical funding face a difficult choice. PPP loan forgiveness is only based on eight weeks of eligible spend after loan origination, but the latest information indicates that most of our small businesses will be closed for longer than this 8-week period.

Additionally, the loan forgiveness built into the PPP requires businesses to bring staff levels back to or close to pre-COVID-19 levels. This is an unrealistic ask due to the lack of predictable sales and steady revenue streams needed to keep employees working at full potential — the program is referencing Feb. 15 pay stubs in most cases. Lastly, the Treasury Department has indicated that all PPP loans will have a maturity date in two years instead of the maximum loan term of 10 years in the CARES Act. The current issues with the PPP, reflected among the small business community, require these businesses to make one of three difficult choices:

Burn through loan funding without operations.
Businesses could take advantage of the funding now, as soon as it’s available, based on pre-COVID-19 payroll costs. But this means bringing back employees to businesses that are closed or those where sales and revenue (as in take out only restaurant operations) are drastically diminished. By bringing back employees that aren’t needed for reduced operations, in order to satisfy the requirement for loan forgiveness, the businesses will have no cash in two months and face laying off employees again at that time.
Take the funding now and save the cash for when businesses reopen.
Taking the PPP loan and delaying bringing employees back until their jobs are needed and it is safe to do so means forgoing the loan forgiveness built into the assistance program. Given the loss of revenue all businesses are facing, being capable of servicing the PPP loan on top of these losses, upon re-opening, will drain cash flows and imperil the newly reopened business
Delay obtaining funding until re-opening is more certain.
Businesses could, in theory, delay applying for the PPP until a more realistic timeline of when re-opening exists. This would allow for alignment of the re-opening with the forgivable proceeds’ stipulation. This seems like the best scenario, but the facts are that many businesses don’t have the funds to be able to make it to this as-yet-specified time. This would also leave the employees of affected businesses wondering if and when their employers intend to bring them back, forcing many to search for other opportunities in the meantime.

The inequities in the timeline of the PPP mean that our business leaders are left without a viable option to save their small businesses, the way Congress intended. For those who want to provide better choices to members of our business community we urge you to contact your elected representatives with the two following suggestions:

Realign the “covered period” for forgiveness with COVID-19’s timeline.
Ask that in future legislation we tie the covered period to when the business is permitted to reopen (e.g., eight weeks after permitted reopening of the business) this will ensure that loan forgiveness isn’t tied to a loan origination date that doesn’t have any relation to when the funds will actually be needed to preserve jobs in the long term.
Guide SBA regulations to preserve small businesses. The regulations governing the PPP need to preserve Congress’s intention to help small businesses survive this crisis and its aftermath. The portions of the PPP that are not eligible for loan forgiveness will have to be paid back quickly. Here are two examples:

The 2-year maturity date of the PPP instead of the 10-year term provided in the CARES Act would be difficult under normal circumstances to repay let alone in the aftermath of an economic and humanitarian crisis. Urge legislators to amend the maturity date of the PPP loan.
Loan proceeds used to pay deferred rent and payroll for periods occurring after February 15, 2020 but before loan origination, should clearly be deemed “incurred” after loan origination and therefore eligible for forgiveness (under the CARES Act, covered rent and payroll must be incurred after loan origination in order to be eligible for forgiveness). For example, if landlords defer April 2020 rent until after we loan proceeds are received, a payment of that rent from loan proceeds should be eligible for reimbursement. Clarify SBA regulations about loan forgiveness eligibility.

Our elected officials are working day and night to safeguard the residents and businesses of Arizona. The PPP, the CARES Act, EIDL, and SBA Loans are incredible examples of this effort. But as our understanding of the pandemic evolves day by day, more needs to be done now to ensure that the small businesses of the state are able to reopen and survive once the immediate crisis is over.