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Important Updates to the Payment Protection Program (PPP) Under the PPP Flexibility Act

Small business owners across the country are now all too familiar with the term Payment Protection Program (PPP). It has quickly become one of the most notable programs to help American businesses ease financial strains created by COVID-19. After feedback from several agencies, organizations, and businesses, certain elements of the program have now been amended under the PPP Flexibility Act. These amendments include measures that will make it easier to meet the criteria for full or partial forgiveness, as well as more flexible repayment terms.

History 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was originally signed into law on March 27th, 2020. It included several measures for individuals, state and local governments, as well as small businesses negatively impacted by the virus. Included in the small business measures was the $349 billion Payroll Protection Program (PPP).

This loan program served to incentivize and make possible for small businesses to retain their employees and continue to meet payroll. The loans have an interest rate of 1% and, if certain conditions are met, can be forgiven. Unfortunately, due to the demand from impacted businesses, these funds were completely exhausted in 13 days. Just over a week later, an additional $310 billion was approved to refund the program.

Updates

On June 5th, 2020, amendments were made to the program via the Payment Protection Program Flexibility Act (PPPFA). These are some of the most notable and impactful changes.

Loan Forgiveness Period Extended from 8 to 24 Weeks – Previously, borrowers had eight weeks from the time they received the loan to spend the funds that could be considered for forgiveness. The PPPFA has now extended this to up to 24 weeks. However, regardless of duration, the period may not extend beyond December 31st, 2020. The 24-week timeframe and December 31st date also apply to how long and by when businesses must restore their workforce to pre-coronavirus levels to be considered for full forgiveness.

Maximum Repayment Extended from 2 years to 5 Years – Not all businesses that received the loan will meet the requirements for full forgiveness. Businesses that are required to repay any part of their loan will now have a maximum of five years for repayment, up from two years under the original program.

Mandatory Payroll Expense Requirement Reduced to 60% – The PPPFA reduced the amount of the loan that must be spent on payroll from 75% to 60%. This provides relief for small businesses in that they are now able to use 40% of their loan proceeds to pay for other eligible expenses and still potentially receive full forgiveness. Eligible expenses include rent, mortgage interest, utility payments, and interest on existing loans.

Clarification on Limitations Due to Circumstances Beyond Employers Control – Loan forgiveness will not be reduced if the business is unable to rehire laid off employees because the employee refuse to come back or if they are unable to find and hire similarly qualified employees for unfilled positions by the December 31st deadline. This further applies if the business cannot return to pre-coronavirus levels of business activity because of continued required mitigation guidelines around sanitation, social distancing, or other worker and customer safety issues.

Deferral of Employer Payroll Taxes – Employers that receive loan forgiveness may defer paying their share of payroll taxes through December 31st, 2020. The deferred amounts are expected to be paid in two equal payments in December 2021 and 2022.

Eligibility

In order to be eligible for a PPP loan, you must be able to demonstrate that COVID-19 negatively impacted your business. You must also meet the SBA’s size standards which is typically 500 employees or less but does vary for certain industries. This loan program is also available for sole proprietors, independent contractors, self-employed persons, nonprofits, veteran’s organizations, and tribal businesses.

How to Apply

If you have not yet applied for a PPP loan and intend to do so, the deadline to apply remains unchanged and is fast approaching. You must apply by June 30, 2020.

To find a qualified lender or for more information visit the SBA website

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