Financial Affairs

What Small Business Owners Need to Know About Paycheck Protection Program Loan Changes

This week, the Treasury and the Small Business Administration released a pardon request form to reflect rule changes. And they also put a “EZ” form for self-employed borrowers who have no employees and for small businesses that have not reduced employee compensation by more than 25% and have not reduced staff size or employee hours.

One of the biggest concerns about the program’s original forgiveness rules was that they prevented business owners from knowing when and how they could use the money if they wanted their loan to qualify for full discount. Those who got loans before the start of June were told they had to spend the money in the first eight weeks and use at least 75% of it for payroll expenses – even though many companies didn’t. were not even open during this time or were not. operating at full capacity.

Now they have more options.

It’s a relief for bar owner Rick Schmutzler, who had told CNN Business last month he wasn’t going to spend his loan in a way that wasn’t smart for his business just to get forgiveness. “I’m going to give them credit – they listened, they acted pretty quickly and I think they got it right. It solves all the big issues we had,” Schmutzler said.

Here are the main ways the new rules provide more flexibility for business owners:

More time to spend money: Instead of eight weeks, borrowers will now have 24 weeks from the day they get their PPP funds to use.

Less money needs to be spent on payroll: In order to qualify for the total cancellation of their loans, borrowers must now allocate at least 60% of their PPP funds go towards salary expenses and can use the rest to pay for overhead costs, such as rent, mortgage interest, and utilities. This change will help high-rent small businesses areas. If a business owner spends less than 60% on payroll, he may still be eligible for a partial rebate. The same principle applied under the old rules but the threshold percentage was below 75%.

More time to rehire staff: To qualify for full pardon under the old rules, business owners had to maintain the average number of employees they had on staff as of February 15 and pay them at the same rate. Or at least they had to meet those criteria by June 30. The new rules extend this exemption date until December 31.

Full pardon may also be available when a company cannot recruit its full staff under Covid-related workplace safety requirements, requiring them to operate at below full capacity.

More time to repay: Under the old rules, any part of the loan that was not canceled had to be repaid within two years. This has been extended to five years for loans made on or after June 5. For homeowners who got their loan before June 5, they can make an agreement with their lender to extend their repayment period, said Veena Murthy, director of the Crowe accounting firm. LLP.

Who benefits? Who doesn’t?

The new rules can certainly benefit small business owners who have yet to take out a P3 loan. The good news is that the program still has nearly $ 130 billion left, according to the latest Small Business Administration count. But June 30 remains the last day for the approval of a PPP loan application. So anyone who hasn’t applied yet should do so soon.

But the new rules are unlikely to benefit small business owners who received their P3 loans early and spent most – if not all – of their funding in accordance with the old rules.

These Small Business Owners Got P3 Loans, But They Are Afraid To Use The Money

And what about small business owners who have already secured their P3 loans but haven’t spent most of the money yet? They will probably benefit from it.

For all small business owners with PPP loans, the forgiveness issue has been the most annoying. As the new rules guarantee more people Lenders and small business advocates say even simplified loan applications are still too much work for already overwhelmed small business owners to show they’ve met all the criteria are likely to see their loans fully canceled.
ABC and others have summer advocate automatic forgiveness of all loans under $ 150,000 – which is about 85% of loans made so far, but only 26% of funds loaned so far. Such a decision would save more than $ 7 billion and 70 million hours of work, estimates the ABC.

In the meantime, small business owners who have concerns or questions about how the new rules apply to them should consult an accountant, lawyer or lender.