A series of amendments to the Paycheck Protection Program implemented late last week could help more small businesses survive.
On Friday, President Donald Trump signed the Paycheck Protection Program Flexibility Act into law. Two core tenants of the act include an extended period to qualify for PPP loan forgiveness and eased restrictions on how much of the forgivable portion of the loan proceeds can be used for payroll costs.
The new act comes days before the initial eight-week PPP coverage period ends for business owners who pioneered the loan program.
Under the PPPF, the loan forgiveness coverage period was changed from eight to 24 weeks, meaning business owners have a much longer window to spend their loan, increasing their ability to qualify for loan forgiveness.
The new time frame is critical for businesses who either were not open because of state restrictions and guidelines relating to the pandemic, or who may have only operated at partial capacity because of those restrictions.
Previously, businesses could have their loan forgiven in full under the condition that 75 percent of funds are used to pay employees over the eight-week period after the loan was disbursed, and if employee and compensation levels are maintained.
The remaining 25 percent could be used for mortgage, lease and utilities payments and additional wages paid to tipped employees. However, the PPPF establishes a new 60/40 ratio for loan forgiveness.
Borrowers previously had a safe harbor date of June 30, 2020 to bring salaries and full-time equivalent employee counts back to pre-pandemic levels or suffer a reduction in loan forgiveness. However, the new legislation has extended that safe harbor date to Dec. 31, 2020.
The PPPF act also provides business owners a chance to become exempt from loan forgiveness reduction if an employer can prove it was unable to hire individuals who were employees as of Feb. 15, 2020, could not find qualified employees to replace its FTE workforce reduction or could not restore its business to pre-COVID-19 activity as a result of federal health guidelines or social distancing requirements.
Under the new legislation, the term of the PPP loan was extended from two to five years while deferral period for payments of principal, interest and fees was extended from six months to 10 months.
The latest legislation also establishes June 30, 2020 as the last date that a PPP loan can be approved. The SBA in conjunction with the U.S. Treasury Department will be releasing further guidance on modified PPP borrower application forms and loan forgiveness application forms.