We are receiving an increasing number of inquiries from independent agents who are questioning whether to apply for or accept money from the federal Payroll Protection Program (PPP). Congress supplied the widely popular PPP with two rounds of funding totaling $650 billion for the Small Business Administration (SBA) to provide forgivable loans to small businesses if all employees remain employed for eight weeks and the money is used for payroll, rent, mortgage interest or utilities.
In Ohio, the SBA reported that 126,159 businesses have received $19 billion in PPP funds. Across the country, 4.2 million PPP loans totaling approximately $530 billion have been approved with approximately $120 billion available for small businesses to apply for.
In the insurance and financial services sector, over 60,000 businesses have received $8.1 billion in funds. This comprises approximately 2.4% of the distributions made in the program.
As the program progresses, the federal government continues to provide updated guidance on the details. As guidance evolves, one thing that remains consistent is that it is the business owner’s sole responsibility to certify and defend that the PPP funds are necessary to continue the current operations given the economic uncertainty caused by COVID-19.
In a recent survey, 93% of OIA members stated that they had lost or anticipated losing revenue in their agency in 2020, with 22% of respondents expecting to lose between 11 – 24% of revenue. This is a stark contrast to the 75% of agencies that reported growing last year in the Big I Agency Universe Study.
As your business plans for the loss of revenue caused by COVID-19 and you are contemplating reducing staff hours, pay, benefits, furloughing people temporarily or permanently eliminating staff due to lost accounts, premium reductions and negative organic growth, keep in mind that a PPP loan is available to keep your team working. In effect, the PPP is keeping people on the company’s payroll with a federal cash infusion instead of moving them to the unemployment rolls during this time of economic slowdown and uncertainty.
The SBA recently announced in FAQ #46 a safe harbor provision that pertains to the good faith certification. According to the guidance, any borrower receiving PPP loans less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.
While PPP applicants must still do the work in certifying economic loss through business planning and documenting the loss of revenue and reduction in payroll expenses as a result of COVID-19, the overwhelming majority of independent insurance agencies are going to fall well below the $2 million threshold and should meet the good faith certification standard.