The Paycheck Protection Program (PPP) provided the money needed by many small businesses to survive. The loan was promised to be forgivable, which attracted many businesses quickly. One problem with the loan was that it had to be used in a certain way within a specified time frame. Problems were created for many businesses that had received money but could not use it as designated.
Congress has now extended this time frame, making it more realistic for businesses to use it and still take advantage of the forgivable aspect of the loan. President Trump is expected to sign this bill into law.
For small businesses that were suffering from shutdowns because they were not deemed essential, the loans at first sounded like a really good deal. It was only weeks later that some of the other stipulations began to appear. Once they were made public, all of a sudden the loan took on a very undesirable taste. This caused many small businesses that really needed the money to return it because they thought they could no longer afford it.
The Terms of the PPP
Initially, the money had to be spent on two things: salaries and typical business expenses. The money was given to help businesses keep their employees on the payroll so that they would not need to claim unemployment. One stipulation from the start that caused problems was that the money – 75% of it – had to be spent on salaries and the other 25% on normal business expenses, such as rent, utilities, etc. This was great until it was discovered that the money had to be spent within eight weeks.
When the money was doled out, most small businesses were still under lockdown. If they were not considered essential – they were not allowed to open. This made it impossible for them to spend this money according to the dictates of the PPP and get loan forgiveness.
Congress Has Approved the Extension
Last week, the House passed a bill for $3 trillion that included just about everything that had been left out of the earlier economic stimulus program. The Senate immediately rejected it. The House then proposed a simpler bill knowing that corrections had to be made to the initial PPP to help the businesses that were still suffering from the pandemic. The Senate passed the bill.
The new bill gives borrowers a much longer time to use the loan money and still be able to get the needed forgiveness. Now, they have up to 24 weeks from the time they receive the loan to use it, or up until the end of the year – December 31, 2020.
If some of the money is not used for salaries or normal business expenses, borrowers initially had two years to repay the unforgiven portion of the loan. The new bill extends the repayment period to five years.
Requirements for Loan Forgiveness Altered
The initial PPP loan forgiveness requirements demand that 75% of the money goes to pay salaries. The remaining 25% is to be used for normal business expenses. This has been changed to 60% to be used for salaries and 40% for business expenses – and it must be used by the end of the year.
Since the money was designed to keep employees off of unemployment, other stipulations involve keeping your employees on the payroll. Loan forgiveness makes it necessary to keep all full-time employees on the payroll for the covered period and the salary or hourly wage cannot be reduced.
Some exceptions do apply to these conditions and other changes may be added in the future. Be sure to talk to your lender to understand the latest conditions.