PPP better than unemployment for paying workers

There’s been some understandable hand-wringing over whether to apply for the Paycheck Protection Program or let furloughed workers take advantage of unemployment benefits, which are unusually generous, thanks to a $600 weekly bonus.

The other complication is that, with shelter-in-place mandates in effect in many states, many operators don’t have work for these furloughed employees, especially drivers. 

So, are those good reasons for operators to skip applying for the PPP, which can provide a potentially forgivable loan worth up to 2.5 times their monthly payroll? 

No, says Ken Presley, United Motorcoach Association’s vice president of legislative and regulatory affairs and industry relations/COO.

“I have had a number of people contact me and say, ‘Why would I put these people back to work? I don’t have any work,’” said Presley. “Basically, Congress is looking at you as an unemployment agency. And if you don’t have work for them, you still need to put them on the payroll and make sure they get paid.”

PPP incentive

There is an incentive for employers to put workers back on the payroll. They can receive money to pay bills. The government is requiring 75% of the loan be spent on payroll (including paid medical leave and insurance premiums) for it to be forgiven. But the rest can be used for expenses such as insurance premiums, mortgage or rent, utility bills and other debt obligations incurred during the covered period. 

“Personally, I don’t think I would be ignoring that much free money because your guys want to be on unemployment,” Presley said. “I would put them back on the payroll so you can get the 25% to apply to mortgage interest, debt service and some other bills. You must still keep the lights on and that’s free money.”

Presley made these comments during the April 9 UMA online Town Hall session, in response to operator questions.

Related story: What you need to know about PPP and EIDL

He recommends operators apply for the PPP and the Economic Injury Disaster Loan. The latter has more flexibility in how the money can be used. 

Requirements for applicants

In the first week, more than 400,000 businesses applied for the PPP loans, with requests totaling more than $107 billion. There are more than 3,700 lenders, from financial giants like Bank of America and Wells Fargo to small community banks, that are taking applications. 

To prevent fraud, lending institutions do have some requirements for applicants. Wells Fargo, for example, is accepting applications only from customers who have had business checking accounts since at least Feb. 15, 2020. 

Deadline for applying is June 30. After that, borrowers can begin the process of asking for loan forgiveness. The money is supposed to be spent within eight weeks of receipt. 

“The basic premise of this PPP loan is to keep employees on staff and provide funding for them for the eight weeks,” said Matt Mandigo, part of Wells Fargo’s small business lending team. He joined the Town Hall, answering individual questions in the chat portion of the session. 

Generous terms

If operators don’t spend 75% of the loan on employee compensation, the money needs to be paid back. The good news is the terms are hard to beat: two years at 1%. Loan payments are deferred for six months after receipt of funds. Up to $10 million can be borrowed for a PPP loan, although any employee making over $100,000 isn’t eligible under the program.

At the front end, acquiring the loan is pretty simple. It’s unsecured, and collateral isn’t needed. There aren’t any pre-loan fees, either. 

Unfortunately, the April 3 launch didn’t roll out as smoothly as planned. Banks were quickly overwhelmed by the volume of applications. But within days, they had made adjustments to address the problems. Wells Fargo, for example, is now asking people to fill out an intake form at wellsfargo.com, Mandigo explained.

“All of the banks are working as hard as possible on the SBA PPP loan applications. They had only a few days to prepare for hundreds of thousands of loan applications coming in all at the same time. We will all get through this together. If you have submitted a request form to Wells Fargo, you will get status email updates, and you are in our ‘queue’ that we are working through. The PPP loan is a fantastic program, so be patient as the banks work through all of them,” Mandigo urged during the session.

He recommends operators file applications at the bank where they have business accounts, if possible.

Question of timing

The problem with the PPP is timing, contends Alan Thrasher, president of the Birmingham, Alabama-based Thrasher Brothers Trailways. He wondered if there was a way for furloughed employees to take advantage of the unemployment bonus and push back the PPP loan until later, when staff would be needed back on the job.

“I understand the clock starts the day you receive the money. The bank has to distribute it within 10 days of the approval. Since there is NO business, there is no reason to bring drivers back now. Would it make sense to delay application until later, say June 1, so that money could carry you to Aug. 1? Leave them on unemployment until June 1. Then, you would have a crew in place come August,” Thrasher suggested. 

There’s only one problem with that strategy, said Presley. The government allocated $349 billion in the CARES Act for funding the PPP, but with more 30 million businesses expected to apply, demand will likely outpace supply.

And it’s unclear if an extension of PPP will be included in the fourth stimulus package, he added. 

The link for applying for the PPP and the EIDL is at uma.org/covid19/.  Join UMA for the next online Town Hall meeting Thursday at 2 p.m. ET on the Zoom platform to discuss the most current issues that matter to operators.


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