Trump Signs Bill Extending Paycheck Protection Program Lending

What’s the story?

• On the Fourth of July, President Donald Trump signed a bill to extend the deadline for small businesses to receive forgivable loans under the Paycheck Protection Program (PPP) from June 30th to August 8th.
• The bipartisan bill, introduced by Sens. Ben Cardin (D-MD) & Susan Collins (R-ME), passed the Senate by unanimous consent on June 30th and then passed the House by unanimous consent on July 1st.
• Additionally, the Treasury Dept. in June released loan forgiveness applications for small businesses that received PPP loans.

What is the Paycheck Protection Program?

• The Paycheck Protection Program (PPP) is open to any small business in operation as of February 15, 2020, with less than 500 employees, including private non-profit organizations, some 501(c)(19) veterans organizations, select businesses with fewer than 1,500 employees that meet SBA size standards for their industry, sole proprietors, independent contractors, self-employed individuals, and “gig economy” workers.
• The PPP received its initial funding with $349 billion under the CARES Act, which was quickly oversubscribed and after a temporary lapse in its operations, an additional infusion of $321 billion was provided under the Paycheck Protection Program and Health Care Enhancement Act.
• PPP loans cover 250% of an employer’s monthly payroll up to a maximum of $10 million for the earlier of the eight week period after origination or through June 30th under the CARES Act. The enactment of the Paycheck Protection Program Flexibility Act modified those terms to give PPP borrowers 24 weeks after origination or through December 31sts.
• PPP loans can be fully forgiven if borrowers use the funds on covered payroll costs & certain overhead expenses. The initial requirement was that 75% had to be used on payroll (including benefits) with the remainder on covered overhead expenses (such as existing lease, mortgage, or utilities payments), but that was lowered by the PPP Flexibility Act to 60% to help borrowers with higher overhead expenses.
• PPP loan amounts that aren’t forgiven are converted to a low-interest loan. For loans originated prior to the PPP Flexibility Act’s enactment on June 5th, borrowers would repay the loan over 2 years at a 1% interest rate. For loans originated after the enactment of the PPP Flexibility Act, loan terms are extended to 5 years at a 1% interest rate, although borrowers can choose to use the shorter repayment term.

How does PPP loan forgiveness work?

• Loan forgiveness amounts are reduced proportionally by any reduction in employees retained compared to the prior year, and reduced by the reduction in pay of any employee beyond 25% of their prior year compensation.
• The Treasury Dept. has released two forgiveness application forms ― the Full Forgiveness Application Form & the EZ Forgiveness Application Form.
• The EZ version of the application is available to borrowers that are self-employed & have no employees; or didn’t reduce salaries or wages by more than 25% & didn’t reduce their hours; or experienced reductions in business activity because of COVID-19 health directives & didn’t reduce employee salaries or wages by more than 25%.
• The EZ application requires fewer calculations and less documentation for eligible borrowers.

To learn more about the Paycheck Protection Program and how small businesses can apply, click here.

To learn more about the Paycheck Protection Program and how self-employed individuals can apply, click here.

— Eric Revell

(Photo Credit: iStock.com / FG Trade)