The coronavirus pandemic seriously impacted all aspects of our lives. The virus especially impacted the livelihood and survival of small businesses due to a combination of government shutdowns, consumer caution and depressed consumer spending. In an effort to provide a lifeline for many small businesses and owners, the Corona Virus, Aid, Relief and Economic Security Act (CARES Act) created the Paycheck Protection Program (PPP) in March 2020.
The loans were designed to be affordable. They were low interest, fee-free and all-forgivable if the business was able to meet some requirements, of which the most important was keeping employees on payroll.
Unfortunately, the pandemic continued for much longer than most had anticipated. Most businesses that took PPP loans and made a good faith effort to retain their employees ultimately either had to shut down or significantly downsize. This has left many of these small business owners uncertain about whether they still qualify for loan forgiveness or have become skeptical as to whether they will even be able to repay at least a portion of their loans. However, with the slower-than-expected economic recovery, repayment may be altogether impossible.
PPP Loan Forgiveness
PPP loans are not automatically forgiven. In order to seek forgiveness of your PPP loan, you need to file an application. If you own a small business with no employees, you can use the simplified application.
The requirements for PPP loan forgiveness include:
- Maintaining employee and compensation levels during the 8-24 week qualifying period
- Spending loan proceeds on payroll costs and other eligible expenses; and
- Spending at least 60 percent of the proceeds on payroll costs
You must provide accurate information at part of your application that is backed with the proper documentation. Although they won’t automatically audit loans under $2 million, they will conduct random “spot checks” to ensure that PPP proceeds are being used as intended.
If you do not qualify for full loan forgiveness, you may be eligible for partial forgiveness.
Chapter 7 Bankruptcy Option
Depending on how your business is structured and whether you plan to continue with business as usual, bankruptcy may be an option if you cannot manage your PPP loan repayment. PPP loans are typically dischargeable in a Chapter 7 Bankruptcy. However, this will play out differently depending on certain factors, the most important of which is the way your business is organized.
The best option is to consult with an experienced Central Valley bankruptcy attorney to help you determine the best course of action.
Call an Experienced Central Valley Bankruptcy Attorney
If you are considering Chapter 7 bankruptcy, it is in your best interest to consult with an experienced bankruptcy attorney to help you learn your legal rights and options, especially with respect to Chapter 7 bankruptcy.
For more information or to schedule a complimentary consultation with Central Valley bankruptcy attorney Gurjit Srai, please call 209-323-5558, or complete our online form.