In its current form, the Paycheck Protection Program may well keep people employed, but it does a lousy job of "saving" the nation's small businesses.

When the government launched the now $669 billion forgivable loan program at the end of March, it was billed as a lifeline for small businesses besieged by coronavirus. If, after eight weeks, companies can show they used at least 75 percent of their loan toward payroll costs and they maintain their pre-crisis head count, the government should forgive the loan.

The rationale was sound: If businesses didn't need to let workers go during the near-national shutdown, they'd be better equipped to reopen without disruption. Moreover, keeping people employed means workers can pay their rent or mortgage and feed their families.

But the plan's many flaws are bound to become apparent as millions of business owners across the country start receiving their PPP checks and really dig into what taking that money means for them. 

If ever there was a time for the U.S. government to do right by entrepreneurs it is now. Forget about the chaotic rollout and the legions of small businesses still waiting on the line for access to the PPP. Forget about all the publicly traded companies that tapped into this program--draining close to $1 billion, which should have gone to Main Street. Forget about the companies, sad to say, that have already gone belly up. Now is the time to make this program truly one that will help save America's existing small businesses. 

Here are the biggest problems with PPP the government should address.

It inflates the importance of payroll costs.

The chief flaw behind the PPP is that it is based on a calculation that doesn't make sense for most small businesses. The maximum value of a company's loan is equal to the lesser of $10 million or 2.5 times a company's average monthly payroll cost in 2019. This includes wages for employees (which includes self-employed people and 1099 workers) as well as expenses for paid sick leave, health care, and other benefits.

But "the majority of the costs for a small business is not staff," says Mehrsa Baradaran, professor of law at the University of California, Irvine, and author of How the Other Half Banks and The Color of Money: Black Banks and the Racial Wealth Gap. "It's utilities [like] electricity and the day-to-day maintenance costs."

If the government wants to save businesses--rather than just preserve paychecks--it should let them use their loans to pay for necessary expenses, Baradaran says. "There is an argument that keeping businesses alive is a value in itself," she explains, noting the multiplier effect of businesses on the economy goes beyond just providing jobs.

It fails to recognize owners must grapple with a new "normal."

As the PPP requires business owners to maintain their head counts or full-time equivalents, it assumes that once the country reopens, businesses will go back to how things were pre-pandemic. We all know now that that won't be the case. According to the latest survey of business owners from the U.S. Chamber of Commerce, 80 percent of small business owners believe it will take three months to a year before the U.S. small-business climate returns to pre-shutdown conditions. Half of those surveyed expect it will take at least six months for the economy to recover. In that same survey, more than one in five small businesses say they are two months or less from closing for good. 

In other words, if a large number of business owners are facing the existential task of reimagining their companies right now, they clearly are also rethinking their staffing needs. So to put the burden of maintaining head count on business owners who don't know if they'll even have a business after all of this is unreasonable. 

It becomes a loan.

To suggest that taking on a loan, which the PPP becomes if business owners are unable to meet the program requirements, ignores the dire predicament now faced by many business owners. For the most part, those businesses, already close to the edge, shouldn't take on more debt.

To be sure, businesses may still qualify for some form of loan forgiveness even if they don't meet the program requirements; if a company doesn't maintain its full head count, for instance, the level of forgiveness would fall accordingly. At the moment, the government hasn't provided the guidance it promised, and this whole topic has led to further confusion. The upshot: If a loan is not forgiven for whatever reason, the PPP turns into a regular loan that the borrower must repay in two years or 18 months if the business owner defers payments for six months. 

Even in good times, taking on additional debt is often unwise--particularly for companies that operate on thin margins like restaurants and discount retailers. At the rock-bottom rate of 1 percent, the debt service on a loan worth $206,000 (the average loan size for PPP loans during the first tranche) is $8,700 each month if the repayment period is 18 months.

Putting a loan payment like that on top of companies that may still be feeling the effects of this pandemic is a massive hardship that shouldn't be taken lightly. "It's gonna get ugly," says Justin Goldman, a commercial banker at the Bank of Greene County, which serves businesses seeking PPP loans in New York's Hudson Valley. 

It isn't enough.

The PPP also requires business owners to start paying employees upon receipt of the loan for at least eight weeks, regardless of whether a business is even allowed to operate. So even companies that can't legally open must rehire employees and pay them to sit at home to get their loan forgiven. That just doesn't square with the needs of a lot of small businesses that would prefer to pay employees for doing their jobs.

Plus, this pandemic may be far more prolonged than most lawmakers realized at the end of March when the president first authorized the program. In the end, eight weeks of help is likely not enough for many small businesses. And even though Congress has authorized $669 billion for the program thus far, Elise Gould, a senior economist with the nonpartisan Economic Policy Institute, said keeping all these people on payrolls into the summer would cost around $1 trillion.

It could land business owners in legal trouble.

If a business decides to use the majority of the money for purposes other than payroll--treating their stimulus money as a loan--they could face fraud charges. Businesses are required to abide by the intent of the program--that is, to use the majority of funds to pay employees or other specifically noted expenses.

Ami Kassar, the founder and CEO of MultiFunding, a small-business loan adviser, suspects that the SBA will audit unemployment filings to catch companies taking PPP loans that don't follow the letter of the program.

It's little wonder, then, that one of the biggest questions Kassar says he's now getting is whether business owners should return their PPP money or repay it early without penalty. With the specter of criminal charges looming, people need to think through this equation carefully. And while Kassar expects guidance to come out on the topic of forgiveness soon, he notes that if you're losing sleep over your PPP loan, give it back. It's an obvious distraction--and right now, especially, you don't need that.  

It's not free money, even if it gets forgiven.

Finally, while PPP money doesn't count as taxable income, a recent Internal Revenue Service ruling confirmed that businesses taking the money can't also deduct the cost of wages or other expenses if they are paid for with PPP money. It would be viewed as double-dipping, according to U.S. Treasury secretary Steven Mnuchin, who referred to it as "Tax 101" on Fox Business on Monday.

If deductions were allowed, businesses could use them to offset other income. As The Wall Street Journal points out, companies that are losing money could use the deductions to offset past years' income and get refunds. Doing so might also mean fewer bookkeeping headaches, as owners could continue a practice they've done for time immemorial.

Ultimately, for a Covid-19 relief program aimed squarely at small businesses, the PPP has missed the mark and delivered a severe dose of added stress, the last thing any business owner needs. The PPP has changed many times since the president first signed it into law. It should change again--and without delay. Anything less puts Main Street itself in jeopardy.

Diana Ransom has been closely covering the stimulus program. She occasionally writes commentary pieces.