On June 5th, 2020, the U.S. Congress enacted the Paycheck Protection Program Flexibility Act of 2020, which outlined new rules on loan forgiveness for the Paycheck Protection Program. In addition, the U.S. Treasury and Small Business Administration (SBA) announced new procedures and changes to the PPP as a result of the new legislation. At a high level, these new rules have been designed to expand access and simplify the process for loan forgiveness.
Loan forgiveness has been cited as one of the most important, yet most difficult parts of navigating the PPP. Here, we break down what you need to know about the new rules.
In this post, we will cover:
- Payroll requirements to qualify for loan forgiveness have been reduced from 75% to 60%
- The PPP loan window has increased from 8 → 24 weeks
- Business owners have more time to rehire laid-off or furloughed staff
- Increased time period to pay off PPP loans
- June 30, 2020 remains the official deadline, so don’t hesitate!
- Other important updates to note
- More PPP Resources (from Nearside and others)
1. Payroll requirements to qualify for loan forgiveness have been reduced from 75% to 60%
Originally, 75% of a borrower’s loan proceeds had to be used for payroll costs in order to be forgiven, with an additional 25% of the loan proceeds being forgivable if they were used on other forgivable expenses (such as rent, interest on covered mortgages, and utilities). While this was an easy rule to follow for employee-heavy businesses, it has been a challenge for some businesses that aren’t as reliant on staff (not to mention confusion on if employers should count self-paid wages).
Now small businesses can still qualify for loan forgiveness as long as 60% of the loan proceeds were used on payroll, with 40% of non-payroll costs still being eligible for forgiveness as well. In addition, the SBA has clarified that the 60% is not a cliff, and the borrowers can qualify for partial loan forgiveness, even if less than 60% of the PPP loan is used for payroll.
2. The PPP loan window has increased from 8 to 24 weeks
The initial PPP rules required businesses to spend their funds within 8 weeks of the date they received loan proceeds. With the new rules, current borrowers can choose to extend the 8-week period to 24 weeks, or they can keep their original 8-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020.
3. Business owners have more time to rehire laid-off or furloughed staff
With the new 24-week periods in place, small businesses now have more time to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. Originally, businesses were expected to rehire their laid-off staff by June 30th, 2020 to be eligible for loan forgiveness, but now have until December 31st, 2020.
4. More time period to pay off the PPP loan
New borrowers have five years to repay the loan (instead of two) for loans approved by the SA on or after June 5, 2020. Existing PPP loans can be extended up to 5 years (if lender and borrower agree), and the interest rate remains at 1%. In general, we're of the opinion that PPP loans are still a great deal for businesses in need or relief, even if they are not fully forgiven, but it ultimately depends on your business.
5. June 30, 2020 remains the official deadline, so don’t hesitate to apply!
As of early June, it was reported that $120 billion of the additional $310 billion allotted to the PPP has yet to be claimed, which means there is still time to apply and receive PPP funds for your business. However, this latest update also included an official statement that June 30, 2020 is still the deadline for loan approval. So be sure to apply now if you haven't already done so!
6. Other important updates to note
The new legislation also includes additional exceptions allowing borrowers to achieve full PPP loan forgiveness-- even if they don’t fully restore their workforce. The new bill lets borrowers adjust if they couldn’t find qualified employees or were unable to restore business operations to pre-Covid levels (February 15, 2020). In addition, the new bill allows small business others who took PPP loans to also delay payment of their payroll taxes, which was previously not allowed under the original CARES Act.
7. More PPP Resources
From Nearside (from newest to oldest)*
*Please note: We are working quickly to update all of our resources to reflect the recent changes to the Paycheck Protection Program, including the calculations provided with our PPP Loan and Forgiveness Calculator.
Other Helpful Resources
At Nearside, we offer small business owners something that no other lending company does: a fresh start and the benefit of the doubt. We extend a line of credit (up to $5,000) to business owners who are just starting out, without requiring a previous business history or a great credit score. Click here to learn more about applying for your Nearside Card today!