Is There Such Thing As Free Money?

Coronavirus Stimulus Package

The big news this week is the new Coronavirus Stimulus Package.  For many small business owners, unemployed workers, and struggling Americans this is great news.  There will be billions of dollars available to small businesses, for more unemployment benefits, and more stimulus money.  Some key benefits in this bill that may help you:

  • Expenses paid for with PPP (Paycheck Protection Program) Loans that are forgiven will be tax deductible
  • Over $80 billion will be available in new PPP loan and EIDL(Economic Injury Disaster Loan)
  • Another $600 per person stimulus check will go out to most Americans
  • Additional weekly unemployment benefits

While all of this aid is wonderful, and much needed, it does not mean that you have to or should accept all benefits available to you.

Deciding If You Need Help

When the first round of PPP and EIDL loans came out, the money was projected to go so quickly that people had to apply and accept the money without really analyzing whether they really needed or wanted it.  Having received it, they then realized that they may not be able to deduct the expenses paid for with the money on their taxes, they could not actually spend the money on what it was to be used for, and many other issues.  Many business owners, business advisors, and bankers were telling people to take all of the money that was available to them.  I was, and still am, hesitant to say the same.

My first concern is that times are really rough right now and many businesses are hurting.  So before you go into debt, make sure you need to!  I know three business owners right now in the process of selling their businesses.  For all of them the big hurdle is the PPP and EIDL loans that they accepted.  The new owners do not want to take on that debt, and the current owners cannot pay it back.  It looks like two of the deals are not going to go through.  The third owner is getting a personal loan to pay off the business loan in order to sell.  This could have happened with any type of loan, not just SBA money, so it is something to thing about anytime you are looking at getting a loan.

For both of loans there are requirements as to how you can spend the money.  Many people ran into the problem of receiving the PPP loan and then were not able to open and rehire employees to pay them.  I know of one business owner who received a PPP loan of $165,000, but was not able to open during the 24-week period that the money needed to be spent.  About $20,000 was paid to office staff kept on, but the loan requires at least 60% of the loan be used for payroll costs.  So now according to his bank it will be a loan that he will have to pay back.  And now having to shut down once again, paying back the loan will be extremely difficult.

And finally, the big one.  Nothing is ever really free!  If you have been receiving grants they are considered taxable income, so the money is not really free.  If you received an EIDL loan you will be paying interest, so again, not really free.  If you are receiving unemployment benefits, a PPP loan, or any type of government assistance, you may not have any costs associated with it directly or currently, but it will cost us all in the future.  There will be higher taxes.  There will most likely be cuts in funding to things like national parks, schools, and government assistance programs.  There may be tougher requirements to get assistance with healthcare or unemployment benefits.  I think help is needed right now, and many businesses will not make it without help.  However, make sure that you are really in need before you apply.

So while we wait for this bill to be signed by the President, look over your financial reports.  Look into creating a budget or cash flow forecast for 2021 if you have not done so already.  Think about if you really need help.  If you do, think about your options.  Is a PPP loan right for you?  Maybe a bank loan or private investor may be a better choice for you.  Or maybe just talking to your landlord about a temporary rent reduction and pay back plan is the best.  Maybe the best option is a new source of income that you’ve been looking into, but haven’t implemented yet.

No matter what your decision, make sure it is your own decision.  Ask for advice, try to find the facts, and read the fine print, but don’t let anyone else tell you what you should or should not do.

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