Your Business Credit

How to make the most of the new PPP loan rules

A new law gives business owners more flexibility in how they use Paycheck Protection Program funds


Recent rules governing Paycheck Protection Program loan forgiveness left a challenge for brick-and-mortar businesses in states that had not allowed them to reopen yet. Now, under new legislation, it will be easier for borrowers to make the most of the loans.

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Many small business owners who received loans under the Paycheck Protection Program (PPP) have faced a big challenge: The funding arrived before they were able to call their team back to work – making them worry that the loan would not be forgivable.

In case you’re not familiar, the PPP is part of the coronavirus stimulus package. It offers small businesses a forgivable loan to cover eight weeks of payroll, plus an additional 25% of that amount for business rent, business mortgages, business mortgage interest or business utilities, provided they kept their employees on payroll or called them back.

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Under a set of interim final rules issued on May 22, small business owners were given eight weeks from the time the loan was disbursed or from the first day of the payroll period in the covered cycle to use the money, or the loan would not be forgiven.

That left a challenge for brick-and-mortar businesses in states that had not allowed them to reopen yet.

Now, under new legislation, called the Paycheck Protection Program Flexibility Act of 2020, signed by President Donald Trump June 5, it will be easier for borrowers to make the most of the loans.

See related: How to apply for an SBA disaster loan

What’s in the PPP Flexibility Act?  

Most notably, the “covered period” has been extended from eight to 24 weeks from origination – or Dec. 31, 2020 – whichever is earlier.

The new law also makes it easier for business owners to use the money for expenses other than payroll and still get forgiveness. Now they can use up to 40% of the money for other eligible costs – up from 25%.

The law also extends forgiveness exemptions for businesses that can show they were not able to rehire individuals who were employees on Feb. 15, 2020; couldn’t hire similarly qualified people for unfilled positions before Dec. 31, 2020 or who can document an inability to return to the same level of business activity as the business had as of Feb. 15, due to certain government compliance requirements related to COVID-19.

Other noteworthy changes include:

  • An extension of the minimum maturity from two to not less than five years for loans originated on or after the date the new law was enacted.
  • A change in the deferral period to the date on which the forgiveness amount is remitted to the lender. Previously loans could be deferred for not less than six months and no more than a year.
  • Removal of the CARES Act requirement that PPP borrowers that receive any loan forgiveness can’t get the employer payroll tax deferral the CARES Act authorizes.

See related: New business financing sources to try when the bank says no

Bottom line

Very likely there will still be clarifications of the law from the U.S. Small Business Administration and the Treasury Department. In the meantime, if you have applied for a PPP loan or still plan to do so, it’s a good idea to get advice from your accountant.

The rules are complicated and given that many owners are hoping to get loan forgiveness, it’s important to get all of the details right.

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