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On June 5, 2020, President Trump signed a new law, the Paycheck Protection Program Flexibility Act (PPPFA), providing greater accommodations for Americans that have taken or will be taking PPP loans. The Paycheck Protection Program (PPP) was ushered in under the CARES Act to be of particular assistance to small employers. Employers have been eligible for PPP loans if they employ less than 500 people and have been economically impacted by the pandemic. Congress passed the CARES Act, the Coronavirus Aid, Relief, and Economic Security Act, in late March 2020 to financially assist employers in light of the financial hit experienced during the pandemic. The legislation was the largest stimulus in national history.
Since March, the Small Business Administration has approved over 1,800 lenders to participate in the lending. The final day employers can apply to receive a PPP loan is June 30, 2020.
Small employer advocates had expressed concerns over what they had seen as pitfalls of the earlier version of the PPP. The PPFA passed through Congress with the approval of all but one legislator. The National Federation of Independent Business recently conducted a survey indicating that 77% of small employers in the country have applied for the loan, making them a cornerstone of the economic recovery effort. Below are key provisions of the amending law that make PPP loans more accessible to American employers.
Eligibility for Loan Forgiveness
Initially, employers had to spend seventy-five percent of the PPP loan money on paying employees in order to be eligible for loan forgiveness. The amended act requires employers to spend sixty percent of the received money on payroll, a fifteen percent drop creating flexibility for employers that allows more people to qualify. Additionally, up to forty percent of the loan may be spent on mortgage payments, rent, and utilities.
The older version of the law required employers to spend the loan money within eight weeks in order to be eligible for loan forgiveness. The PPPFA allows the owners to spend the money over a twenty-four week period thereby extending the amount of time in which the money can be spent. However, borrowers can still apply for forgiveness after two months of loan receipt.
In order to qualify for loan forgiveness, employers had to rehire an equivalent amount of full-time workers by the end of June. Some organizations expressed concern that this was not feasible. In New York City, for example, restaurants are not predicted to offer outdoor dining until July, making it unnecessary to be fully staffed. The changes allow the employers to qualify for forgiveness so long as they hire the same number of workers by the end of the year, giving employers more time to reacquire business. It also provides exceptions to the hiring requirements, including if the employer can show that they have suffered a loss of business compared to the business they received pre-pandemic.
Extending Repayment on Loans and Taxes
If PPP loans or portions of the loans are not eligible for forgiveness, recipients now have five years to repay that sum, as opposed to two years. Furthermore, the law has been adjusted so that employers whose loans are forgiven can still defer employer payroll taxes that go to Social Security, an option that was not available to them under the earlier version.
Although COVID-19 has deeply affected the economy, the federal government’s expanding the loan forgiveness provisions and increasing the amount of time over which PPP loans may be repaid will help stabilize small employers.