By Extending the Use Period, the Paycheck Protection Program Flexibility Act Helps Businesses Use Loan Money to Better Suit Business Needs.
The Paycheck Protection Program (PPP) offered business loans to help pay payroll for employees during the Coronavirus Pandemic. The original bill required businesses to use at least 75% of the loan to cover payroll expenses within eight weeks to qualify for loan forgiveness. However, some small businesses remained closed to the general public, and therefore, we’re unable to meet these guidelines.
Congress stepped in and developed the Paycheck Protection Program Flexibility Act. This Act allows small businesses more time and freedom to utilize the needed funding without losing the ability to qualify for loan forgiveness.
What Is the Relief Provided by the Paycheck Protection Flexibility Act?
Under the Paycheck Protections Program Flexibility Act, small businesses have more time and more options for use. Under the new plan, any company in receipt of the PPP loan may now use at least 60% for payroll expenses and use the remaining 40% for other bills, such as rent, electricity, taxes, and more.
Furthermore, under the original plan, businesses were required to utilize the funds within eight weeks, whether the company opened to the public or not. Under the new policy, businesses have up to 24 weeks to use the funds.
The workforce amnesty provision of the bill required employers to rehire or replace employees by June 30. It has been changed to December 31. Additionally, while the original bill allowed employers to exclude workers who refused good-faith offers of reinstatement of employment, the new Act allows employers to retain loan forgiveness even if they cannot find new employees to fill those positions or return to pre-COVID February 2020 levels of employment based on the current operating restrictions.
Finally, borrowers were afforded two years to pay off the loan. Now they have five years to pay it off. The 1% interest rate remains intact.
Why Is the Timeline and Type of Use an Important Piece of the New Plan?
The purpose of the PPP was to allow businesses to take out a loan that could be forgiven if the guidelines were adequately followed. Therefore, during the COVID-19 outbreak and subsequent shutdown, businesses could stay afloat. Employees could receive income without the business being forced to repay a loan they possibly could not afford.
However, if the business did not use 75% of the funds for payroll expenses within eight weeks, it would lose its ability to qualify for forgiveness.
Under the new provisions, employers have more time to use the loan and more options to use the money where needed. This change allows businesses to continue payroll and keep their doors open by paying crucial operating expenses.
If the employer follows the new rules, the payroll portion of the loan is forgivable. The remainder of the loan does not need to be repaid for five years and will only accrue 1% interest per year.
How Do Employers Apply for PPP Forgiveness?
The SBA has released the application for PPP forgiveness based on the original rules. It is unclear whether the application will change under the new guidelines. To learn about applying for loan forgiveness under the PPP, you can download the application here.
To learn more about the Payroll Protection Program Flexibility Act and PPP loan forgiveness, contact our account managers at WorkplaceHCM today. We are here to help you navigate the PPP loan process, guide you on the best practices for utilizing the funds, and help you apply for loan forgiveness. Call today at (856) 334-9711 or Contact Us with any questions you might have.