The health pandemic has been a difficult time for small businesses, to say the least.
On May 27th, the House passed the Paycheck Protection Program Flexibility Act by 417-1, attempting to ease restrictions on small businesses as they seek loan forgiveness.
There have been approximately 4.9 million Paycheck Protection Program (PPP) loans issued to date, says the SBA and the Treasury Department, with an average loan size of $100,000.
Approximately $130 billion remains in the program, and considering that the SBA issues about 1,000 loans in a typical year, 4.9 million PPP loans in three months is a quick pace.
On July 4th, a new law was signed, extending the deadline for applying for a PPP loan from June 30th to August 8th.
When can I apply for PPP loan forgiveness?
A big issue surrounding the PPP was that it required businesses to spend the funds in 8 weeks (from the date funds were received). For a business shut down by Covid-19, this required businesses to spend funds when conserving them was more realistic.
This was recently fixed by extending the time period to spend the loan proceeds to 24 weeks.
A borrower can apply anytime between 8 and 24 weeks.
What if I reduce salaries more than 25%?
If a borrower has reduced salaries of employees by more than the 25% permitted, they have to apply that reduction for the entire loan period, either 8 or 24 weeks.
This can be avoided by not reducing salaries above 25% and using all PPP funds before seeking loan forgiveness. The time limit for borrowers to rehire workers has been extended until December 31st, 2020.
Is the PPP application difficult?
An easier application form is one of the newly implemented changes, with Form 3509EZ. The original Form 3508 was very complicated, and often business owners needed an accountant or lawyer to complete it.
How long does the PPP process take?
Once the application is submitted, the lender has 60 days to make a “good faith” review, ask for additional information, request documentation, and make a decision. Once the lender has conducted its review, it submits the application to the SBA. The SBA has 90 days to conduct a review. It can either approve the forgiveness, ask for more information, or approve a portion of the loan for forgiveness. If it does not approve all or part of the loan for forgiveness, borrowers have 5 years (changed from 2 years) to repay the loan at 1% interest.
While positive changes have been made regarding the PPP loan program, I forecast more alterations in the coming future. It’s important that we help small businesses during this difficult and unprecedented time in our history, and that we focus on conserving and rebuilding our communities. While the PPP loan program aims to do just that, and the recent changes are steps in the right direction, there are still issues to address.
Myers CPA acts as a fractional CFO/outsourced accounting firm, so you can focus on your business, while we focus on the finances.