Why I decided to return my PPP money

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I’m the founder and CEO of a small wealth management firm in Houston, with just eight employees and $850 million in client assets. When the Paycheck Protection Program was first announced, I was practically giddy because I had never qualified for any type of government program before. The PPP program almost seemed too good to be true, and all things considered, it was for me.

I was originally surprised at how simple the process was and how few strings were attached. I didn’t even have to prove a need; all I had to do was attest to uncertainty making the loan necessary. Hey, I’m in the uncertainty business; sign me up!

 The PPP was rolled out in lightning speed, writes advisor Gil Baumgarten
The PPP was rolled out in lightning speed, writes advisor Gil Baumgarten.

I was even more surprised at receiving funding within 72 hours and with zero requests for more information. My last mortgage loan was 10 times more complicated than this. Having rarely borrowed money in my life and never for my business, the PPP program seemed remarkably unlike traditional government programs which are notoriously full of red tape and gotchas.

In retrospect, this was all due to the lightning speed with which the program was to be rolled out. I think it was a remarkable feat for such a bureaucracy, and one that I originally intended to exploit. This program was clearly designed by businesspeople, and it’s starkly Reaganesque in its supply side economics. The separate $1200 stimulus checks are demand side. It’s a blitz either way.

As I figured would be the case, those strings showed up later.

The PPP program has some amazing features in addition to sheer speed of deployment. But as I figured would be the case, those strings showed up later. While it’s true that the forgiveness of the loans is not counted as taxable income, that’s a double-edged sword. In its current, but still changing form, the deductibility of the expenses paid for with the loan are also seemingly lost.

That’s the same calculation as taxing the loan forgiveness as income and allowing full deduction of commensurate expenses, since the loans are relegated to only paying for fully deductible expenses anyway. But after-the-fact guidance on this morphing program is now on its umpeenth adjustment. It’s a moving target with new guidance now indicating one might not lose the deductibility of the expenses paid for with PPP money after all. This clearly constitutes the double dipping of benefits that the IRS had sought to avoid.

That could make the loans even more valuable than simply being treated like tax free revenue if the attributable expenses are still deductible against other income, but this feature is still being debated and taking shape.

The process of returning the PPP money was even simpler than the scant original application. We simply notified the banker who had provided our original access via the SBA. She calculated our accrued interest for the 35 days we had the money, and provided a loan payoff amount, now including our whopping $104 worth of interest charges. We signed the approval and the money was withdrawn from our account as easily as it had arrived.

I would love to say I reconsidered participation on the benevolent notion that others were more needy than me and they simply applied too late for the original funding. I’m simply more practical than that. As the program takes more shape after the fact, I decided to bow out precisely because I am self-interested in more ways than just monetarily.

Now that I must now disclose on my firm’s Form ADV that we took the money, I had to ask myself some difficult questions.

Given the fact that I must now disclose on my firm’s advisory disclosure Form ADV that we took the money, I had to ask myself some difficult questions. Might this loan open me up to further scrutiny from an already zealous SEC regulator?

Uncertainty aside, could I justify my $103,000 loan as “necessary” despite my business’ seven-figure checking account balance? Do my ongoing operations really need support? Am I acting in good faith? Could my reputation be tarnished by seeking a relatively small sum of free money? I’m in the honorability business requiring spectacular degrees of trust and an unwavering moral compass; would a new or existing wealthy client view this as right and just? Do I lose my voice when I complain in the future about less government being better than more?

Given my personal answers to these questions, I determined that whatever the final treatment of these monies, it just was not enough value for me to walk through this moral minefield. Despite the new ruling that loans under $2 million have a safe harbor against a bad faith test, even this low risk of persecution still didn’t set well with my soul. I am confident and hopeful that someone more needy than me will benefit from the returning money. I am also confident and hopeful that life will return to normal for us all sooner rather than later.

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