Paycheck Protection Program Loan Reform | Pivotal Finance

The Paycheck Protection Program (PPP) helps small business owners and other individuals adversely affected by the COVID-19 pandemic. In particular, the loans provided through the program are forgivable as long as borrowers retain their employees on payroll for a defined number of weeks.

Congress has approved legislation that triples the number of weeks business owners have to use the loans, from eight weeks to 24 weeks, while retaining full loan protection. The Paycheck Protection Program Flexibility Act, approved by the U.S. Senate on June 3, 2020 after near-unanimous approval by the House, also changes the ration of funds that must be spent on payroll from 75/25 to 60/40. This change allows business owners to have greater discretion in using funding on overhead expenditures.

These changes come after some small business owners reported difficulty in accessing the loans and the need for greater flexibility in how the loans can be used. There were also publicized accounts of a number of large, publicly traded companies receiving the funds meant for small businesses.

Other highlights of the Paycheck Protection Program Flexibility Act include:

• Business owners with PPP loans will now be able to delay payroll taxes, which was not allowed under the original language.
• Two new exceptions were added to rules for full loan forgiveness. First, if employers are not able to find qualified employees for open positions, they are still entitled to loan forgiveness, if they meet other loan requirements. Second, if a business is not able to fully restore its operations because of COVID-19 operating provisions, they can still receive loan forgiveness. Borrowers will still be able to qualify when employees turn down their good faith offers to be rehired at the same pay rate and number of hours.
• In addition to the 24 weeks business owners have to restore their workforce and wage levels to pre-pandemic levels, they now have six more weeks to do so. The new deadline is December 21, 2020 rather than the original deadline of June 30, 2020.
• Previously, borrowers had two years to repay the loan. Now, new borrowers will have five years to repay the loan if the lender agrees. The interest rate remains at 1%.

The PPP, which was originally funded at $349 billion in April, was replenished with another $310 billion when funds were depleted in less than two weeks. The Small Business Administration (SBA) reported that as of June 3, 2020, 4.5 million borrowers had received approvals for loans totaling $510.6 billion.

The Small Business Administration and Department of Treasury are expected to provide guidance on the new rules.

For more information on this topic, please contact our team at (334) 472-9490 or via email at info@pivotal.finance.