Congress created the Payment Protection Program (PPP), as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. Under the PPP, Treasury and the SBA are offering $349 billion in forgivable loans for small businesses damaged by the COVID-19 pandemic to cover costs including payroll, rent, utilities, and mortgage interest. The funds are intended to provide small businesses the resources they need to maintain their payroll, hire back employees who may have been laid off, and cover applicable overhead, initially including up to 8 weeks of payroll costs, including benefits. Eligibility is broad-based, including eligible nonprofit organizations, Veterans organizations, Tribal businesses described in the Small Business Act, as well as individuals who are self-employed, or are independent contractors who meets program size standards.
The loans can be forgiven, if they are used for payroll costs, interest on mortgages, rent, and utilities first set if at least 75% of the forgiven amount must have been used for payroll. Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government, nor lenders will charge small businesses any fees, but businesses must keep their employees on payroll, or quickly rehire them and maintain their salary levels. If the number of employees is reduced, or salaries and wages are decreased, forgiveness will not occur. All loans will have the same terms regardless of lender or borrower. A list of participating lenders as well as additional information and full terms can be found at www.sba.gov.
The U.S. Senate passed the House version of Paycheck Protection Program (PPP) legislation Wednesday night (6/3/20), tripling the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness of the loans. The biggest changes allow for the PPP funds to be spent over a longer period of time up to 24 weeks from 8 weeks, and the reduction of spending down payroll costs from 75% to 60% of the loan amount will still allow for forgiveness of the loan proceeds now referred to as the Paycheck Protection Flexibility Act, a House bill that President Donald Trump is expected to sign. The push to pass the legislation was fueled by the running clock on the initial eight-week window recently expiring for the first recipients of PPP loans.
Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75%, but borrowers must spend at least 60% on payroll, or none of the loan will be forgiven. Some of the language in the bill suggests a sliding scale will be utilized. Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness, but this must occur by Dec. 31, instead of June 30.
Workforce re-hire address.
Exceptions for full PPP loan forgiveness are allowed, even when the workforce is not fully restored, considering that not all employees would return, even after good faith offers to be rehired at the same hours and wages as before the pandemic are presented. The new bill allows borrowers to adjust because they could not find qualified employees, or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
New borrowers will now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if both lender and borrower agree. The interest rate remains at 1%. The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.