COVID-19 news and updates change quickly and frequently. Some of the information in this article may soon be out of date. We will do our best to keep the details updated during this challenging time. The article below reflects information as of June 4, 2020.
In recent months, we shared information about how small businesses and contractors can access funds through the Coronavirus Aid, Relief, and Economic Security Act (CARES) using the Paycheck Protection Program (PPP). This forgivable loan program infused $349 billion into the economy in response to the economic fallout from COVID-19. But many small businesses were left behind because the funds ran out in 12 days. They added new funds to the PPP budget on Friday, April 24, 2020.
On Thursday, May 28, the U.S. House of Representatives passed additional legislation to relax the rules for how businesses can use the PPP funds, known as the Paycheck Protection Program Flexibility Act.
Changes to the Payment Protection Plan
These recent updates are two-fold: Businesses can still apply for available funds, and the PPP loan requirements have changed.
In the original requirements for the Paycheck Protection Program, businesses had to meet specific standards to qualify for the loans to be forgiven. These restrictions have impacted demand, causing many small business owners to move forward cautiously due to concerns about debt forgiveness in the future. At the same time, business owners are concerned about the administrative burden of accepting loan funding because of the complicated calculations needed to determine the forgivable portion of the loan under the strict regulations.
The latest measure eases the rules and gives companies more flexibility in the way they use the funds. Here is an overview of some of the updates of this new plan:
- The old plan previously required small businesses to spend 75 percent of the funds on the payroll. The new plan reduces this amount to 60 percent, with the goal of encouraging companies to maintain employment for as many workers as possible.
- The original plan required businesses to use the funds within two months. The new plan extended this timeline to six months.
- The new plan pushed back the deadline for rehiring workers to June 30.
- Business recipients have a longer timeline to repay the loan.
- Companies that receive the loans also have the benefit of deferring payroll taxes.
Keep in mind that even though the U.S. House approved this plan, time will tell if the Senate passes the updates as well. In Washington, there is optimism that the Senate will also approve the bill and the president will add his final signature. Senators are also discussing the possibility of a blanket policy that would automatically forgive all loans under a $150,000 threshold.
PPP Loan Money Still Available for Small Businesses
Recent numbers show that it still allocates more than $120 billion for small business support through the Paycheck Protection Loan program. If you have not yet applied for the PPP loan, there is still time. This monetary support can help you in the months to come.
On May 30, reports showed 4.4 million loans were granted through two rounds of the PPP program, with distributions totaling a loan value of $510.2 billion. According to CNBC, “The average loan amount has come down from the first round of funding, to $114,000, a sign that some say means the capital is reaching truly small businesses.”
Many small businesses are still hurting from the economic impact of COVID-19. Many business owners have delayed applying for this government program because of the strict and complex rules. By relaxing the terms and conditions, the government hopes more businesses will apply to use this money.
Accessing Funds for Your Business
If you need financial support and have not yet applied, then now might be an optimal time to use the available funds. Every business owner needs to weigh the balance of taking on additional debt and how the economic recovery will play out in the upcoming months.
Applications are reviewed in the order received, so there is no reason to delay. Learn more about your options at the U.S. Department of Treasury Website.