Payment Protection Program Changes Extend Loan Periods, Loosen Restrictions

For businesses ravaged by the COVID-19 pandemic and related shutdowns, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act back in March of this year. Part of that act, the Paycheck Protection Program (PPP) has provided billions of dollars in relief to about 5 million small businesses and nonprofits, along with some larger firms. Since implementing the program in March, the federal government has been expanding and modifying it so that more businesses may take advantage of the loans and keep their employees on the payroll. Below are some updates on this important legislation that will serve as a lifeline for many of our clients.

More Than $500 Billion USD Spent, Over 650,000 Business Recipients Named

In early July, the U.S. Department of the Treasury named more than 650,000 companies receiving over $150,000 USD each in PPP loans, as reported by Crain’s Detroit Business and the Associated Press. This figure represents 15% of the program’s 5 million business recipients, with an average loan amount of $107,000 USD. As of the Treasury’s report, over $521 billion of PPP money has been spent so far.

Application Deadline Extension and Other Changes

As the June 30, PPP application deadline came and went, about $130 billion USD remained available out of $660 billion USD total, so Congress passed an amendment extending the program application deadline until August 8. President Donald Trump signed this amendment into law on July 4, as reported by Business Insider.

Additionally, the Payroll Protection Flexibility Act, implemented in June, has loosened the loan forgiveness requirements, making the PPP loans more palatable and useful to small businesses facing so much uncertainty. As a result of the new legislation, PPP loan recipients generally need to spend 60% or more of the money on payroll expenses, instead of 75% or more that was required under the PPP’s original loan forgiveness rules. Loan recipients now have 24 weeks to use the loans, extended from the original timeline of eight weeks. Partial forgiveness is also available, although some small business owners and nonprofit professionals may be thrown off by the new rules’ complexity.

Please note that the loan maturity timelines have also changed. Specifically, if you applied for a PPP loan before June 5, it will have a two-year maturity timeline. If you applied after that date, a five-year maturity timeline would apply instead.

The Treasury Department released several more changes, in addition to the ones we’ve already discussed here. As stated by the Treasury Department, the new guidelines:

• Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020, and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.

• Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.

• Extend the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).

Interestingly, the PPP is similar to the JOBS Act of 2012, since lawmakers intended both programs to aid small businesses. That being said, many startups may not be eligible for PPP loans. If they are, they might not be able to have their loans forgiven. Instead, these small businesses may need to rely on the JOBS Act crowdfunding to raise badly needed capital.

Tell Us What You Think

How well is the Paycheck Protection Program working in your state? How helpful will the new extension and other program modifications be to small businesses in your industry, especially those affected by COVID-19? Please share your thoughts and experiences with the PPP in the comments.