The Paycheck Protection Program (PPP) Just Got a Lot More Flexible
June 17, 2020
- Details of the new PPP Flexibility Act passed by Congress June 5th
- What changes for business owners receiving government aid?
- What’s next for stimulus relief?
Money doesn’t grow on trees, right? Well, apparently, that’s unless a global pandemic shuts down a roaring economy. In that case the government really has no choice but to print money out of thin air in order to keep millions of Americans on their feet. Now, this isn’t the same as having a “money tree” because this printed money comes with legislation. In its latest attempt to support the American economy at all costs, Congress just passed the Paycheck Protection Program Flexibility Act (PPPFA) in order to give business owners more flexibility on how they spend government aid, and if/when they must pay it back.
Congress already committed nearly $3 trillion to support local Paychecks, and this new amendment to the CARES act is the next step in ensuring small businesses are able to rehire the millions of Americans who are now unemployed.
Five ways the new Paycheck Protection Program Flexibility Act impacts business owners
- Changes the minimum amount business owners must spend on payroll costs
- Adds 16 weeks to the total coverage period
- Gives business owners more time to apply for full loan forgiveness
- Extends the loan maturity date from 2 years to 5 years
- Gives businesses 6 more months to rehire employees to receive loan forgiveness
The CARES Act initially required business owners who received Paycheck Protection Program (PPP) funds to use at least 75% of the money on payroll costs in order to have the loan fully forgiven. Now, business owners are only required to use 60% of the funds on payroll costs in order to receive loan forgiveness. That leaves them 40% instead of 25% to use on things outside of payroll costs (like equipment, rent, interest on debt, operations, etc.)
The PPPFA also extends the “covered period” from eight to 24 weeks. This extension gives entrepreneurs and small business owners a lot more time to qualify for partial or even full forgiveness. Basically, the “coverage period” is the amount of time the business can use PPP funds before they must apply for loan forgiveness or begin paying back the loan. The extension to 24 weeks is particularly helpful for entrepreneurs in hospitality and retail because many of their businesses are still shuttered due to the COVID-19 lockdown. Note: the start date of the covered period still begins on the date of the first loan disbursement.
Additionally, the Flexibility Act allows businesses to apply for full loan forgiveness (if eligible) for up to 10 months after their coverage period ends. If the business doesn’t qualify or the owner doesn’t apply for loan forgiveness after 10 months, they will have to pay the loan back in full, plus interest and fees. Another amendment to the initial PPP law is that the total loan term is now five years instead of two years, which gives businesses a lot more time to pay back the government.
one of the most important parts of the new PPFA legislation is that it gives businesses more time to rehire the employees they let go while at the same time still qualifying for loan forgiveness. This is important because Initially under the CARES Act, businesses receiving PPP funds were eligible for loan forgiveness only if they kept all employees on payroll or if they rehired every laid off employee by June 30, 2020. However under the new Flexibility Act, business owners have until December 31, 2020 to rehire all employees and still qualify for loan forgiveness.
Who got the funds?
An ongoing part of the PPP debate is whether or not the government should tell us exactly who got loans. Some are concerned that the Treasury Department doesn’t actually know where all the money went because they left much of the leg work to the banks. Others say the information is “proprietary” and doesn’t need to be shared with the public. But Paychecks everywhere are wondering: if we taxpayers paid for the bill, why shouldn’t we know where the money went just like we do with all other taxpayer-funded bills?
What’s next for stimulus relief?
The White House is seriously considering another round of stimulus checks that could come as early as July. Also, the Fed recently started buying corporate bonds as part of their ongoing plan to support financial markets. This could help buoy the recovering economy from any future instability. But most importantly, Congress is already working up a fourth phase of government aid that will likely include both state and local aid, payroll tax waivers, a back-to-work bonus, and/or any combination of the long list of menu items the government has put together. At least for now, the PPPFA gives businesses more flexibility to get back to business as normal and hopefully it's a sign of good things to come!