Congress passes bill providing greater PPP loan flexibility

June 5, 2020

Congress passes bill providing greater PPP loan flexibility

Following the June 3 passage by the Senate of a bill expected to be signed into law by President Donald Trump, small business owners will now have greater flexibility in using their Paycheck Protection Program (PPP) loans.

The legislation triples the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness of the loans – by extending the amount of time borrowers have to use PPP funds from eight weeks to 24. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.  Businesses can opt out and still use the eight-week covered period.

It also extends the deadline to rehire laid-off and furloughed employees and still qualify for loan forgiveness from June 30 to December 31.

The action came in the wake of a major outcry by small business owners who asked that the PPP funds be available for when they reopen – and that they have more flexibility on loan forgiveness. Changes to the 75% threshold and two-year term address violations of the intent of the CARES Act, which established the PPP.  Last month, the inspector general of the U.S. Small Business Administration found those requirements, established by SBA and the U.S. Department of Treasury, “could result in an unintended burden to the borrowers.”

Among the bill’s key provisions:

  • The bill reduces from 75% to 60% the amount of PPP money that must be spent on payroll expenses for the loan to be forgiven completely. The remainder can be used for rent, utilities and mortgage payments.
  • The bill also gives borrowers five years to repay the loan instead of two years. The interest rate remains at 1%.  Existing loans will remain at a two-year maturity.
  • The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
  • Creates a safe harbor for businesses that are required to open at only 50 percent capacity.
  • The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.

PPP recap: Established by Congress to provide relief to small businesses during the COVID-19 pandemic as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, the SBA-administered program can fund loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.

The PPP launched in early April with $349 billion in funding that was exhausted in less than two weeks. On April 21, Congress provided an additional $310 billion in funding – and almost immediately, concerns about the attainability of loan forgiveness under the program’s rules were raised.

PPP funds are available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including tax-exempt not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees also can apply for loans in certain situations.

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