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Is Paycheck Protection Plan Going to Become a Financial Burden? Featured

Is Paycheck Protection Plan Going to Become a Financial Burden? high-rise buildings during daytime

 As the burden of debt continue pilling up due to the damage that the coronavirus continues to leave behind, many businesses are operating at a loss. Some are even on the brink of insolvency. As such, most of these businesses are looking for ways to remain afloat even as the burden of fixed charges keeps weighing them down even after closure of operations. Most of those facing the most significant challenge are the small businesses.

According to the Small Business Administration, the loans that are intended to help small businesses in the current economic downturn could leave most of them in debt instead of helping them. While the Paycheck Protection Program can provide loans that will aid small businesses in navigating the tough challenges emanating from the coronavirus pandemic, it may impact businesses in the long term. However, the PPP provides a new support scheme as established under the CARES Act. The act provides small businesses and nonprofits access to forgivable loans of up to $10 million. These loans are crucial in maneuvering tough circumstances that businesses have to endure as a result of the COVID-19 pandemic.

Congress allocated $349 billion to this program in the first stimulus package, and another $310 billion was added into the package back in April by the lawmakers. Therefore, so far, More than 4.1 million PPP loans have been approved. The SBA was given the opportunity to implement the program by the act. The SBA has since then created strict rules that govern the way PPP loans can be used. Despite the rules in place, the SBA inspector general notes that the rules do not conform to how the program was laid down under the law. Accordingly, they could be harming the businesses that are desperately in need of money to sustain themselves.

From the reports by SBA, the borrowers in the first phase of the program used more than 25 percent of the amount they received to cover fixed costs such as rent and utility bills. This means that they are likely to face a new debt even after getting the kind of help they got. This is not something to be proud of, considering they have to pay the debt. The good thing is that they can renegotiate the terms of repayment with their lender if these small businesses are unable to repay the amount within two years.

The loans that can be forgiven must fall into the payroll, mortgage, rent, and utility categories of expenses. The condition for forgiveness includes spending 75 percent of the loan on the payroll. As such, you will need to keep your records and ensure that bookkeeping is as accurate as possible to prove how your money has been spent. In the payroll category, your loan expenditure must include salary, wage, parental, medical, sick leave, and vacation.

Despite the promising beginning, the launch of PPP has faced challenges. Some of the issues include technological loopholes and access problems, that have resulted in some small businesses failing to receive support. On the other hand, financial institutions such as larger banks that issue banks such as the Bank of America only give loans to their regular customers. This means that business owners who were not customers of such institutions cannot access the loans despite being needy. With the uneven access to the loans, those who have received the amount will find it hard to get support for their business operations during the pandemic. With the credit information showing the inability to repay loans, those who have used their loans for other purposes will face a problem in the future as the loans become a burden instead of helping.

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Scott Koegler

Scott Koegler is Executive Editor for PMG360. He is a technology writer and editor with 20+ years experience delivering high value content to readers and publishers. 

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