Paycheck Protection Program Loans: Moving Forward
Through the enactment of the CARES Act, the Small Business Administration received funding and authority to guarantee 100% of their loans in a new program named the Paycheck Protection Program. Although receiving emergency funds through the Paycheck Protection Program helps small businesses pay employees as well as bills such as rent, utilities, or mortgage payments, the funding comes with specific restrictions and requirements to qualify for loan forgiveness. With the application period for PPP loans complete as of June 30th, 2020, many businesses are looking forward and focusing on how to navigate forgiveness, payment, and interest for loans received.
New Rules
The newest rules put forward by the SBA concerning PPP loans help solve three challenges that faced small businesses. The first and highly demanded change it produced is the creation of a new form for businesses to use when applying for loan forgiveness through their lender. The original, highly complex Form 3508 is no longer required for submission for forgiveness. Form 3508EZ may be substituted for the former which often required an accountant or lawyer’s help. Secondly, the SBA reduced the percent of PPP loan money that must be spent on payroll expenses from 75% to 60% meaning that the amount of PPP loan money that can be spent on non-payroll expenses increased. This allows small business owners to pay rent, utilities, and mortgage expenses in greater amounts. It does not allow businesses to make prepayments on mortgages or pay principles and still receive loan forgiveness. These two changes made PPP loans more flexible to better suit the needs of businesses facing financial hardship in different ways and made loan forgiveness accessible without having to spend more money on legal or financial advice. Finally, it expanded the loan forgiveness period from eight to twenty years. As businesses apply for forgiveness, loans that are not approved for forgiveness and were received after June 5th are due within five years at a 1% fixed interest rate. For loans received prior to June 5th, small businesses must negotiate their five-year term (from the original two-year term) with their lender.
There’s Still Time
For businesses that missed out on the application deadline, the Senate and House passed a measure via unanimous consent that extends SBA PPP lending for another five weeks. While the bill must still cross the President’s desk, it has received bipartisan support. With just under $130 billion remaining in PPP loans, many small businesses could receive business saving loans to help pay off pressing bills if this measure is fully enacted. With 4.9 million loans totaling $520 billion, the PPP loan program has benefitted many vulnerable small businesses as the COVID-19 pandemic shut down the United States’ economy. Small businesses that are still interested in receiving PPP funding but missed the June 30th application deadline should monitor the development of this extension in order to be prepared with application materials and apply in a timely fashion.
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