Small businesses have greater flexibility on how and when they can spend funds from the federal aid program after President Trump signed into law a new bill on Friday.
The legislation amends the Paycheck Protection Program (PPP), which has provided more than $500 billion in forgivable loans to small businesses across the country after two rounds of funding.
The Paycheck Protection Program Flexibility Act (PPPFA), which had nearly unanimous bipartisan support, extends the loan forgiveness period from eight weeks to 24, reduces the payroll requirement from 75% to 60%, raises the loan repayment period from two to five years, and extends the June 30 rehiring deadline through the end of the year.
Though the PPP allowed countless small businesses to keep workers on their payroll, the initial guidelines for how and when to use the loan in order for it to be forgiven were met with plenty of criticism and concerns.
The PPFA addressed those concerns by making the following changes:
1. Time period for using the funds has been extended.
The PPP originally required businesses to spend the funds within eight weeks of receiving them. That created issues for businesses that were shut down since there weren’t nearly as many expenses. Those businesses would be better off holding on to the funds until they were back in operation, but the initial eight weeks would not allow them to do so.
The PPPFA extends the time period to spend the loan to 24 weeks, so owners have triple the time to figure out how to most effectively use the loan.
2. Amount that must be used on payroll has been reduced.
The PPP loan originally required businesses to spend 75% of the loan on payroll expenses. With many businesses forced to close their doors, that meant they were paying employees to stay home and not work.
The PPPFA has reduced that requirement to 60%. While it does free up more money to go toward other expenses, for the loan to be forgiven the remaining funds must still be used for payroll costs, interest on mortgages, rent and utilities.
3. Deadline to rehire workers has been moved to the end of the year.
Initially, the PPP required that all workers must be rehired by June 30 for their salaries to count towards forgiveness. Again, owners were concerned because they weren’t sure if the business would be at full capacity — or open at all — by that date.
Under the PPPFA, businesses now have until Dec. 31 to rehire workers in order for their salaries to count towards forgiveness.
4. Repayment term has been extended.
The original program required that any funds not forgiven must be paid back within two years. The PPFA has extended that period to five years. Unchanged is the 1% interest to repay the loan. If all requirements are met, no portion of the loan has to be repaid — essentially meaning the loan turns into a grant.
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