In the CARES legislation, they created this SBA loan for small business that is intended to stem a deluge of layoffs. Broad strokes, you can borrow a couple months' worth of payroll and if you refrain from laying people off, the amount you borrowed to pay them will be paid for by the SBA. 75% of the forgiven amount must be for payroll, and the remaining 25% can be used for rent, utilities, what have you. It's a rule that obviously does not fit every situation. With an entertainment venue that is 100% closed down, there is no work to be done for this staff. There is rent to be paid though. And, maybe if the rent gets paid (or suspended) there will be jobs to be offered again 6 months from now. Seems like the loan is most useful for businesses that didn't get shut down by the stay home orders. And, if you didn't get shut down, do you really need free government money? Which brings me to this ethical question. If the point of the SBA loan is primarily to float workers who would otherwise be laid off by small businesses, is it unethical to take the money and pay employees for doing no work until the money runs out and you have to lay them off? Or do ethics require that you have meaningful work for them to do?
So not sure if I can directly answer the last question, but some context here with what I'm dealing with. So my job with my company is managing a field of contractors who do the execution work for our firm. They work for us 99% of the time, and I effectively manage them, but technically they setup an LLC, and are considered owners of their own firm. What they are all doing right now is applying for that loan even under the pretense of having basically no employees (some list their spouses or children as executive assistants, etc), and my understanding is that they are getting approved. At the same time their work with my firm, while it is looking to decrease in April and May, isn't necessarily going away. There is lot of consulting work they can do or different markets to work in at this time that need help from firms like mine and many others. So point is, I don't know that this loan has all the necessary guard rails to make sure it's being used in the right places. Think of all the big 4 firms that hire thousands of contractors just like I do. If they are setup as an LLC which most are, there's alot of money that'll get shelled out to people who really aren't those who the bill was designed to help.
Thanks for that story. Doesn't surprise me at all. Looks to me like the government is just begging to be defrauded with this SBA scheme. Which is kinda why I started the thread -- if they are begging to be defrauded, is it actually wrong to defraud them? I attended a church talk once on operating charities and the speaker's first point was "you will be cheated by the people you are trying to help, and that's okay." If their aim is to give away $349 billion, maybe what's most important is that we take it. At least in the case of contractors or disenfranchised workers, at least those are low- and middle-income people who can use the money and not a $100 billion private equity firm running a shell game to hoover up all the money for themselves.
There's nothing unethical about it - it's sort of the point. It saves the government money on the flipside by not having to pay unemployment. However, the money must be used within 8 weeks of getting the loan, and there are a bunch of restrictions to get it forgiven. If you don't spend it on payroll and don't the same number of FTE's as last year, you risk losing forgiveness. So you might be able to use to spend a little on rent, but it's questionable - especially given the current way they've defined labor, which is hugely problematic and doesn't cover what most people think it does. So in an ideal world, you time the loan to when you're about to re-open (if it's in the next few months), so you can get actual labor paid off and give yourself the best chance to ramp up your business.
Examples of things to consider: 75% has to be used on payroll but you also must have the same number of FTE's as previously. So unless you cut everyone's pay by 25%, it's going to be tricky. In the current SBA guidelines (which are FUBAR), employee share of FICA taxes and federal withholding of their income tax doesn't count as payroll costs. So only the net pay would count - which means the rest has to come out of your pocket. This also means if an employee randomly requested extra withholding, that amount is not forgiveable - even though it has no economic impact on you or your employee.
If the employees are getting paid for doing no work, a pay cut should be palatable enough. Though as I believe you've complained about elsewhere, they might make better money on unemployment than they do by taking a paycheck.
True - but along with the unemployment part, keep in mind that you have to pay employer FICA taxes for those people (not forgiveable, though it's deferred to 2021), and also potentially employee FICA and withholding would not be forgiveable unless they fix the guidelines (which everyone is hoping they do). So if you spend $1000 + $75 on employer FICA taxes, it's possible that $200-$300 of that has to come out of your pocket. So now you're paying people to do nothing only to have part of it forgiven. (on the flipside, your unemployment tax rates will go up next year if you furlough everyone) So you *can* do it, but it's probably not economically wise. You can, however, get a $10,000 EIDA Loan that is essentially forgivable if you just spend it on any legit business expenses. So if the goal is to cover rent, that may be a wiser route. It's unclear what happens if you apply for both (PPP is much larger). They get merged, but what's forgivable in terms of payroll vs rent is still a bit of a mystery.
I'm an LLC and am my only employee. I've wrestled with the question to apply or not. I haven't been affected yet, but anticipate a full shut down once the peak of the outbreak nears the Harris County area. Chronicle puts that date at April 23rd this morning. Right now the construction industry is deemed essential (fortunately for me). But I do anticipate everything shutting down and believe it should if or when the outbreak 'blows up' here. So with that in mind, my gut tells me I should apply with the anticipation of this. By the time the money is available it will basically be needed to pay back bridge loans or whatever I have to do when the time comes. So, ethically, I believe I'm on high ground. But technically I don't need it yet. The advice I get ranges from "Of Course...it's free money" to "wait and see". I'm so b@ffled.
Part of this depends on if your goal is a loan or grant. The PPP has to largely be used on payroll to be forgiveable. Otherwise, you're just taking out a 2-year loan and it's NOT free money. The EIDA might be more workable, but has a limit of $10k for forgiveness.
Waiting and seeing does nothing for you. I own a company that employs 6 FTEs and 18 contractors. I applied not because of our current situation, but because of the anticipated future situation. If at the end, it turns out I don't need it, I will give it back, and all will be fine. But there's no scenario IMO where you applying ends up negatively affecting you.
[Premium Post] I own a large operation in Calexico, am I eligible for some free government money? And if so, and purely for convenience, would it be possible for me to get paid in Mexican pesos? Thanks in advance. GOOD DAY
I would say that you should take it, stash it away in case you need it, and if you end up fortunate enough to make it through the other side with steady income, think about some areas you could donate some or all of it to. Otherwise it's already earmarked, and will probably go to a Trump slush fund.
This is not at all true. For forgiveness, you only have 8 weeks after the origination of the loan. Timing matters immensely. If you can't use the money during those 8 weeks, you're forfeiting the forgiveness and instead just taking out a loan you'll have to pay back over the next few years.
If you don't use it for the specified purposes, that's a criminal act and you'd also risk losing any LLC personal liability protections and the like. This isn't just free money being handed out.
You can’t save it and see if you need it. It is the 8 weeks that immediately follow the receipt of the “loan” that goes into whether you get forgiveness or not. You need to use those dollars on payroll, rent and utilities during those 8 weeks to have those dollars forgiven. also, you don’t need to have the same number of employees to get forgiveness. The amount of forgiveness is reduced proportionately based on ratio of current employees versus your choice of number of employees during two different time periods. You don’t need your employees to “work” to get forgiveness. You do need to pay them. That is at least stated purpose of program. Nothing unethical about a restaurant using the funds to pay its employees for 2 months (and rent and utilities) and staying closed during that period with hopes of opening back up with your staff intact when this is over. Keeps employees paid and keeps the team together.
Gotcha. I didn't look up specific rules for it, but I just know from experience with my contractors, it's not like they are going to use it for paying for payroll. It's pretty much just going to paying themselves, or their spouses who are their only employees. I guess they could re-purpose to business expenses of some sort, but again i'm not sure about the specifics on this loan. I just know they are getting it, and they aren't what you would think of as a mom and pop small business that has true work stoppage with overhead, and employee salaries to pay for.
