Paycheck Protection Program Flexibility Act of 2020

At this point, you may be a whiz on the government’s Paycheck Protection Program (PPP) benefits, or you may be left with some questions. We’re here to get you up-to-speed on the current PPP and recent changes that were made. In short, the PPP was created by the US Federal government’s Coronavirus Aid, Relief, and Economic Security Act (CARES Act) as a way to distribute a $669-billion business loan program focused on helping small business, non-profits, sole proprietors, tribal businesses and those self-employed that were in operation on February 15, 2020, with 500 or fewer employees.

What Does the Program Offer?
The loan provided by the Paycheck Protection Program is a low-interest private loan that helps companies with their payroll and other business expenses. Some critical points concerning the loan:

  • A business’s PPP loan is an estimated 250 percent of the company’s average monthly payroll costs, with a max of $10 million.
  • Once received, the loan can cover rent, interest, utilities, and any payroll costs.
  • If a business can maintain its employee count and employee wages stable, the loan amount could be partially or fully forgiven by the lender.

Qualifying For the Loan
The following organizations are eligible for the PPP loan (and can only receive one loan):

  •  Individuals that are self-employed that work in a trade industry
  • Independent Contractors
  • Individuals who operate as a sole proprietor
  • Small Business – less than 500 employees
  • Not-for-profits – a 501(c)(3) with less than 500 employees

Changes to the Act
On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (PPP) was signed into law by President Trump to provide forgivable loans to businesses. This new legislation addresses several flaws from the original Paycheck Protection Program that provided only $349-billion to small companies between April 3 and April 16, 2020. To learn more about the new changes to the law, you can find the document here. Here are the crucial changes at-a-glance:

The new PPP Flexibility Act allocates for a timeframe extension to spend PPP Proceeds. Initially, the time frame was eight weeks of a “covered period” from receiving the loan approval to spending the funds. Now, a business has up to 24 weeks, or December 31, 2020, in which the PPP loan recipient may spend the received funds while qualifying for loan forgiveness. This extension aids businesses such as restaurants or other small shops that temporarily closed due to a shutdown required by their local or state government.

Rehire Deadline Extension
Back in April 2020, the original deadline for companies to rehire furloughed workers was June 30, 2020. That deadline is now extended to the end of the year (December 31), giving employers more time to bring back their workforce or eliminate a reduction in employment, salary, or wages. This bill now allows applicants to receive their forgiven amount without including the number of employees if the businesses are unable to determine the following:

  • To rehire the organization’s former employees or hire similarly qualified employees
  • If the company is unable to return to the same level of business activity due to COVID-19 government regulations.

Reduction in Payroll Costs Percentages
Those who receive a loan will see a reduction in the amount required for business owners to use it towards payroll expenses. The original terms were 75%, which has been redacted to 60% to qualify for full forgiveness. With this change, businesses now have a remaining 40% to use on non-payroll expenses. This change eliminated the original cap of 25% that company could use towards expenses.

Terms of the Repayment Period
The new changes also include expanding the time for new loans from two years to five years. Those businesses that received a loan before June 5, 2020 can request their lender to extend it from two to five years. The interest rate of 1% does not change no matter the length of the loan agreement and will continue to accrue during the lifespan of the loan.

Early Loan Forgiveness
Small businesses, non-profits, and specific other entities that were affected by the COVID-19 pandemic and government-imposed quarantine may apply for loan forgiveness early. This bill revises the deferral period for loan applicants. Now, companies may defer their loan payments until they receive compensation for the forgiven amount. However, if businesses forgo applying for forgiveness, then the timeframe to pay back the loan amount is ten months after the PPP ends.

How to Apply
If you meet the program’s requirements, you can apply for PPP with any lending institution that has an established relationship with the Small Business Administration (SBA). You can apply for the loan by finding a lender from the Eligible Paycheck Protection Program Lenders list. You have until June 30, 2020 to submit your application to a SBA lender.

Bottleneck of Paperwork
The SBA, on average, administers an estimated $30-million worth of small business loans within the fiscal year. For PPP, the SBA now manages over $600-million of business loans within a timeframe of several weeks.

Financial Impact
The PPP is not the right solution for everyone. While designed as an incentive for small businesses, many business owners question the economic impact of taking on such a loan.

Contract Workers
With a growing “gig economy,” the workforce has faced a challenging time in receiving funds from the PPP. Several businesses, especially those that work in the gig economy, found the original process challenging and missed the opportunity to receive federal funding. All independent contractors and gig-economy individuals do qualify for the PPP.

Hospitality Industry
With over 30 million small businesses in place, the idea behind PPP was a good one. However, it did not translate well – especially for those in the hospitality industry. The original idea for restaurants and bars was to keep their staff paid even though they could not provide working shifts during the COVID shut down. Instead, waitstaff are learning that they can receive more money while on unemployment rather than returning to work. Also, depending on your state, some restaurants have not opened to full capacity yet.

For additional questions concerning the program, paperwork required, or overall inquiries, the SBA created a Frequently Asked Questions document that you can access to help with your application.

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