If you’re a business owner struggling with some of the provisions of the Paycheck Protection Program (PPP) – part of the CARES economic stimulus legislation for small-business owners designed to address COVID-19 – you may find its new provisions provide you with more flexibility. And if you haven’t yet applied for a PPP loan, it’s not too late.
First, here’s a little background. The PPP was designed to help companies with fewer than 500 employees receive loans from banks and other lenders, primarily to cover payroll costs and other operating expenses during the crisis. If businesses met certain conditions, these loans would be forgivable. But some parts of the PPP still proved problematic for business owners.
For one thing, the PPP program initially required businesses to spend 75% of their loan proceeds on payroll within eight weeks of loan receipt. This provided little flexibility on how the loan proceeds could be used. For businesses closed because of COVID-19, it may have been difficult to meet other costs, such as mortgage payments, rents and utilities.
Now, due to just-passed legislation known as the Paycheck Protection Program Flexibility Act (PPPFA), the amount of the loan required to be spent on payroll is reduced from 75% to 60%, freeing up 40% of the loan proceeds for approved operating expenses. Further, the PPPFA extends the period for spending the loans to the earlier of 24 weeks or Dec. 31, 2020. As such, businesses now have additional time to rehire workers and use the loan proceeds toward their salaries, with those amounts still eligible for loan forgiveness. Under the original legislation, to have the loan proceeds fully forgiven, businesses had to rehire their workers by June 30, even if they weren’t open or operating at full capacity.
Even with these new, more relaxed rules, some businesses still won’t be able to meet the payroll requirements for loan forgiveness – but the PPPFA has something for them, too. The first version of the PPP only gave businesses two years to repay the loans, or parts of the loans that weren’t forgiven, but the new legislation expanded this period to five years.
Also, the PPFA allows businesses to defer Social Security payroll taxes on the forgivable portions of their loans; previously, this deferment was not allowed under the CARES Act.
If you’ve already obtained PPP funding, you may not have to take much action, because most of the PPPFA changes are retroactive and will automatically apply to your loan. However, lenders that made loans before the PPPFA was enacted are not required to modify existing loans to the five-year repayment period, so you may want to contact your loan provider for more information.
And if you haven’t yet applied for a PPP loan, you may still have the opportunity. As of early June, about $130 billion in PPP loan money was available, according to the Small Business Administration (SBA). For more information on how you can apply for a loan, visit www.sba.gov or contact an SBA lender, federally insured depository institution, federally insured credit union or Farm Credit System institution.
In seeking relief from the effects of COVID-19, business owners have faced a tough road with plenty of bumps along the way. But the latest source of help from Washington may just make your path a little smoother.
This article was written by Edward Jones for use by your local Edward Jones financial advisor. Karsten L. Jacobson, CFP®, is a financial advisor for Edward Jones at 2208 Sawgrass Village Dr., Ponte Vedra Beach, (904) 285-9898.
