Legislators add flexibility to PPP funds

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A move to add flexibility to loans designed to assist small business during the COVID-19 pandemic is in the works.

It is called the Paycheck Protection Program Flexibility Act and the bi-partisan H.R. 7010 was passed by the United States House of Representatives May 28.

With the March 27 state mandated shutdown of many small businesses due to the COVID-19 pandemic, questions arose about any available resources for financial assistance.

On April 3 the “Small Business Paycheck Protection Program” was established to provide an economic incentive for small businesses with 500 or fewer employees to keep or rehire their workers.

Implemented by the United States Small Business Administration with support from the Department of the Treasury, the PPP is a $349 billion emergency loan program created by President Donald Trump’s signing of the Coronavirus Aid, Relief and Economic Security Act (CARES).

The program provides forgivable loans up to $10 million to small businesses left financially stressed by the COVID-19 pandemic. The loans, administered at the local level by banks and credit unions, are designed to provide small businesses with funds to pay up to eight weeks of payroll costs, including benefits.

Backed 100 percent by the SBA, the loans are provided to small businesses without collateral requirements, personal guarantees, SBA fees or credit elsewhere tests.

The CARES Act was signed into law March 27 and the Small Business Administration announced that the first day banks would accept PPP loan applications was April 3.

The Interim Final Rule, providing operation guidelines for the program, was released only hours before the deadline banks were given to begin accepting loans. According to national news reports, many banks weren’t ready to handle the program which was pushed live before banks could create processes for accepting and funding these loan applications.

Those eligible for the PPP include small businesses, certain non-profits, veterans’ organizations, self-employed individuals, independent contractors and other businesses meeting size standards based on their North American Industry Classification System code, according to the SBA.

H.R. 7010 was initiated because, as many small businesses began the process of the varying stages of state-authorized reopening, the need for more flexibility for the terms of their PPP loans was realized.

While small businesses have begun to reopen, some remain closed and others required to adhere to strict capacity limitations. The Flexibility Act essentially creates a safe harbor for businesses that are required to open at only 50 percent capacity.

The act extends the forgiveness period from eight weeks to 24 weeks although small businesses that prefer to stay within the original eight-week window can opt-out of the extension.

The current PPP requires that 75 percent of the loan must be used on payroll costs and 25 percent to be used on mortgage interest, rent and utilities. Failure to adhere to this rule impacts loan forgiveness.

Under the Flexibility Act, the 75/25 rule is replaced with a 60/40 percent rule.

Also under the Flexibility Act, all new PPP loans will have five-year maturity. Existing loans will remain at the two-year maturity. It allows businesses that receive loan-forgiveness to also receive payroll tax deferment.

To receive loan forgiveness, a business must rehire employees by Dec. 31. Higher unemployment benefits may discourage some employees from returning to work and under the Flexibility Act, businesses that make a good faith effort to rehire will satisfy headcount requirements for the purposes of forgiveness.

H.R. 7010 now faces action in the United States Senate. The Senate can decide whether to concur with the House bill or present its own bill.

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