Paycheck Protection Application Problems

We are in uncharted waters. Nobody seems to know when COVID19 restrictions will end, should start, or how and to whom they should apply. Programs are rolling out to cushion the losses to individuals and to businesses, but the rollouts have been fraught with issues and lack of clarity. Who is eligible and for what, and how are they to apply and to whom? The Paycheck Protection application program through the SBA seemed straightforward, but how can a program be straightforward when it comes with a 31 page clarification PDF?

Yikes!

What is the Paycheck Protection Application For?

The Paycheck Protection Program is a loan program, it is not a grant. These funds will have to be repaid in the future unless specific requirements are met.

1. Businesses must retain their employees at comparable compensation such as they had before the COVID19 crisis.
2. Loans are to be used to offset no more than eight weeks of payroll expenses.
3. Loans must be used for their intended purposes. However, there are expenses other than payroll that are eligible.

However, the loan may be used for purposes other than payroll. Specifically, it can pay for leases, rent, continuation of healthcare benefits and insurance premiums mortgage interest, utilities, and other expenses.

Principal Problems: Question Section

The first question asks if the applicant has been disbarred, proposed for disbarment, suspended from their professional license and other criteria. Very specifically the first question on the paycheck protection application asks about bankruptcy.

• Bankruptcy and Federal Loan Debts

There have been some interesting questions arising from people filling out the Paycheck Protection Application and bumping headlong into a very specific set of circumstances. The first question on the application question is as follows, “Is the Applicant or any owner of the business presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or presently involved in any bankruptcy?”

Being involved in a bankruptcy means having an active and undischarged bankruptcy, following a reorganization in Chapter 11 or 13, or you have just begun the process of bankruptcy with a new filing. So, if your company has been discharged from bankruptcy, you should be good to go unless you have previously defaulted or are currently delinquent on a previous SBA loan.

The second question on the application specifically asked about any previous SBA or other federal loans that are delinquent or defaulted within the past seven years. If the first and second questions are answered yes, the loan will not be approved.

• Previous Disaster and SBA Loans

This question may or may not be a disqualification, but it does seek to find out if your business has had any economic injury disaster loans issued between January 31 and April 3 of 2020. You will be required to certify later in the document that any loans received under Section 7(b)(2) between January 31 and April 3 of 2020 war for purposes that do not include payroll, payroll costs, and other allowable uses under the paycheck protection program.

• Criminal History

In questions five and six on the paycheck protection application, the applicant is asked about criminal history. Specifically, if anyone who owns 20% or more of the applying company has any of the following that apply to them.

• They are subject to indictment.
• They are subject to criminal information – this is a charging document that lays out the factual basis for pending criminal charges.
• They have been arraigned or are awaiting arraignment or are facing any criminal charging processes in any jurisdiction.
• They are incarcerated, on parole, or on probation.
• They have, within the past five years, been convicted of a felony; pled guilty to a felony; entered a plea of nolo contendere; has been in pretrial diversion; has been on probation or parole including pretrial or prejudgment probation.

If questions five or six are answered in the affirmative, the application for the paycheck protection program will be denied.

Certifications and Authorizations

I know, I know. Nobody ever reads those things – they are just like the terms and conditions on a website. However, this is a legal binding document and filling it out with intent to deceive is perjury and fraud. Read this application carefully before you fill it out, as it has civil-rights ramifications, and even restrictions that required to the extent possible you purchase American made equipment and products.

Already Underwater?

If your business was in trouble in the run up to the COVID19 pandemic, you may be struggling with other expenses along with payroll. If you are eligible for other state and federal programs, you should absolutely apply. However, you need to understand that these are loans and will need to be repaid from future revenues or other resources. This is not “free money” – apparently those are only for airlines, cruise companies, and folks with big lobbyists. If you were not certain about making the rent or your expenses back in January, you may be much less certain now even with the paycheck protection application and other loan programs. It may be time to consider filing for bankruptcy.

We Can and Will Help

We are here to help in a time of crisis. Life doesn’t stop just because of disasters, and in Florida we know that all too well. This might not be a hurricane, but it is a major disaster with far-reaching consequences for people and businesses all over South Florida. At Van Horn Law Group, we have spent a lot of time since 2009 becoming the bankruptcy experts. We understand that every case and every filing is different. We are not a cookie-cutter law firm, but genuinely care about getting you the bankruptcy you need. We are currently offering our free initial consultation either by telephone, or with the applications Skype, Zoom, or Face Time. These apps can be installed on a cell phone, tablet, or computer. Get in touch with us and let’s focus on the future of your business without cumbersome and crippling debt.