Big changes are coming to the Small Business Administration’s Paycheck Protection Program.
The U.S. Senate approved the Paycheck Protection Program Flexibility Act of 2020 on June 3 following the May 28 approval in the U.S. House of Representatives. The bill was signed into law on June 5.
The new law amends the signature lending program of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which is designed to help small- and medium-sized businesses cope with revenue losses associated with COVID-19 restrictions and shutdowns.
Key changes as detailed by the law firm FisherBroyles LLP include:
- Lowering the requirement for 75 percent of a PPP loan to go toward payroll expenses to 60 percent. The remaining 40 percent can be put toward other business expenses, such as mortgage, rent or utilities.
- Extending the loan forgiveness period to 24 weeks for costs incurred after a loan is issued or through Dec. 31, whichever comes first. The previous loan forgiveness period was eight weeks.
- Also extending loan forgiveness eligibility through Dec. 31 if borrowers restore staffing or salary levels that were reduced due to the pandemic. This provision applies to employee and/or wage reductions that occurred from Feb. 15 through the end of April.
- Allowing businesses that document their inability to rehire full-time workers employed as of February 15 or hire similarly qualified workers by the end of the year to remain eligible for loan forgiveness.
- Repealing a provision in the CARES Act preventing companies whose PPP loans are forgiven from deferring their payroll tax payments.
- Allowing borrowers to defer principal and interest payments on PPP loans until the SBA compensates lenders for any forgiven amounts. That replaces the current six-month deferral period. Borrowers who don’t apply for loan forgiveness will have a minimum of six months after the program expires to begin making payments.
- Creating a minimum loan maturity period of five years following an application for loan forgiveness, up from the two-year deadline the SBA initially set.
PPP lending was reactivated in late April after the $349 billion initially allocated was exhausted in less than two weeks.
A Congressional spending bill replenished the PPP fund with another $310 billion. However, borrowers have been more reluctant to obtain PPP funding in the second round amid increased scrutiny of the program.
A CNBC report indicates more than $120 billion remained available for PPP loans as of May 30. Through that date, the SBA has issued 4.4 million PPP loans totaling $510.2 billion combined.
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