isn't the loan forgiven if it's spent on payroll during the shelter-in-place orders?

Only the part that went into the payroll. So a business owner with no revenue borrowed money he did not need and got saddled with the payments.

Oh, and as the vast majority of the loans it is personally guaranteed.

Compare this with:

Don't get the loan. Shut it down. Not owe more money than the owner would owe already.

"Only the part that went into the payroll"

why else would you ask for the loan? the whole point is to keep employees on the payroll while they're under shelter-in-place orders.

Because while payroll is a cost it is not the only cost that a business that no longer has any revenue needs to cover. The maximum amount of a loan is 2.5 times the verified payroll. That's 2.5 months of pay. The rest of costs still need to be paid, except there's zero guarantees that the revenue of a business is going to recover immediately after the stay at home is lifted [it won't immediately recover] and it is unknown when the stay at home would be lifted. Lets presume that all other costs of running a business are added to some other loan. That loan is not 0% and it is personally guaranteed.

This means that by taking this loan and spending it on a payroll for next 2.5 months, the owner of the business in a month number 3 is in a worse position than the owner of the business would have been today if the owner were to simply lay off everyone.

The only winners in this are banks making a percentage of a zero risk loan that can be serviced at an incremental cost of a couple of dollars (electronic payments). It is, frankly, disgusting that the congress yet another time took small business loans as a base and made it a money stream for banks.

> This means that by taking this loan and spending it on a payroll for next 2.5 months, the owner of the business in a month number 3 is in a worse position than the owner of the business would have been today if the owner were to simply lay off everyone.

How is that true? The loan is forgiven if it is used to pay employees. Yes there are other costs, but assuming a business doesn't want to just close up shop entirely, keeping their employees would be preferable to losing all employees and their entire business.

The revenue for these businesses cratered. It cratered due to government actions. For service businesses or businesses that sell to service businesses the revenue is zero or nearly zero. The reason why the businesses needed X employees before is because to support Y revenue pre-closure X-1 employees were not enough. In order for the the payroll portion of a loan to become a grant a business cannot decrease the number of workers even though it has no revenue to support them. Reductions in payroll costs reduce the forgiven part of the loan. Reduction in a headcount reduces the forgiven part of the loan.

Essentially, in order for a loan to be treated as a business makes the following bet:

"In no more than 2.5 months from the moment the loan is funded the revenue will return to pre-closure levels"

The non-grant part of the loan (or entire loan if it no longer qualifies) must be repaid in 2 years at 1% APR.[0]

The only real play for a small business that is planning on being around for a long time is to get the loan based on the top payroll number, immediately lay everyone off taking 1% APR hit and repay outstanding loans with higher APR. This is only applicable to businesses that have a lot of cash in a bank.

[0] Before Wells Frago/BOA/Chase etc complained to Treasury that they were not going to make enough money to "make it worth for them to do these loans" the repayment terms were 0.5% APR for 10 years.