Using Paycheck Protection Program Loan Contingency Insurance as a Hedge

October 19, 2020

As companies who received Paycheck Protection Program (PPP) loans are considering whether to seek forgiveness of those loans, they should also consider whether to hedge that forgiveness with Paycheck Protection Program Loan Contingency Insurance.

Consider a company who received the PPP loan for $2,000,000. The company had identified that they needed the funds to retain employees, had no other ready source for the funds and spent the funds for the proper purposes. The company is now looking for forgiveness under the Program from the Small Business Administration (SBA). The company is concerned about the political aspects of the request and knows that all PPP loans of $2,000,000 or more will be audited. The company further knows that if forgiveness is denied (either by the SBA or after audit), it may be called upon to return the funds (or at least be saddled with a $2,000,000 loan it doesn’t need on its books, as this pandemic continues).

So, what can the company do to put itself in a better position when it seeks forgiveness of the loan?

Buy Paycheck Protection Program Loan Contingency Coverage

Click here to read an earlier article with parameters on the program. Some additional information on the program follows:

Only Top Tier Risks will be Accepted
This has proven to be a popular insurance product and currently only one carrier is offering the coverage. As such, the carrier is only offering indications on top tier risks.

Emphasis is on Risks that Utilize the Funds to Save Jobs
Underwriting preference is going to companies that can show a clear connection between the funds received and the jobs saved. Where that connection is less clear (such as other funds became available to pay the payroll costs), coverage may not be extended.

Reach out to your Producer or Account Manager at The Graham Company if you feel that this coverage is something you would like to pursue. If you are not a client of The Graham Company, reach out to Sean Brogan (contact information below), who can provide you with the information you need to access this beneficial insurance product.