The Paycheck Protection Program officially ended on May 31, 2021. Read our PPP page for more information or visit our PPP Loan Forgiveness Guide.
As part of a larger relief package, Congress approved $284.5 billion in new Paycheck Protection Program funding. The types of businesses and industries that are eligible for PPP loans have been expanded under the new bill. Additionally, businesses that can demonstrate at least 25% reduction in gross receipts year over year and meet other requirements may be eligible for a second PPP loan.
On June 3, 2020, Congress passed the Paycheck Protection Program Flexibility Act, which includes several key changes to the Paycheck Protection Program (also known as PPP) that will affect the millions of small businesses that received a PPP loan, as well as the many who may still yet apply for one. The president signed the bill into law on June 5, 2020.
Ever since the introduction of the PPP in late March as a response to the coronavirus pandemic, business owners, industry leaders, and even some politicians have asked for changes to the program that better address how the pandemic has impacted American businesses.
The PPP was originally conceived as a short-term fix to the economic fallout of the various stay-at-home orders and restrictions on business operations. Months later, some businesses are still unable to operate as normal, unemployment is climbing, and consumer demand is subdued. In order to make it easier for businesses to achieve forgiveness of their loan under these conditions—and thus survive long-term—the PPP has been altered through this bill.
Let’s review the changes that the PPP Flexibility Act, also known as H.R. 7010, brings to this loan program and how it will affect your small business, whether you’ve taken out a PPP loan yet or not.
The PPP Flexibility Act amends the PPP in the following ways:
You can review the full text of H.R. 7010 to review all the modifications.
The SBA and Treasury will need to decide how to implement these changes as quickly as possible.
That’s very important, as 7% of the PPP loans that have been approved will finish out their covered periods during the week of June 1, 2020.
For business owners that already applied for and received PPP loans before this bill passed, they’ll be able to take advantage of most of the changes detailed above.
Most of the changes to the Paycheck Protection Program through this bill will apply to borrowers that applied for the PPP before the passage of this bill as well as after. Only one change does not apply to existing borrowers: Their loan maturity will still only last two years, rather than being extended to five. (However, existing borrowers and lenders are allowed to work together to agree on an extended maturation of the loan.)
The bill was held up in the Senate for a number of reasons, but one of the biggest concerns was that the Treasury may interpret the new law in a way that could hurt business owners.
Under the previous law, businesses had to spend at least 75% of the loan on payroll in order to receive forgiveness. If they spent less than that, their forgiveness could be reduced in relation to how much they spent. With the PPP Flexibility Act, that threshold has been lowered to 60%, but the language of the bill may have forced the Treasury to interpret the act to say that if a business spends anything less than 60% on payroll, they will receive no forgiveness at all. This potential “forgiveness cliff” was reportedly unintentional.
The Treasury and the SBA then issued a joint statement confirming that they would allow for partial forgiveness if businesses spent less than 60% on payroll.
Additional legislation from Congress may also address any technical issues that arise in the implementation of the bill.
If you’ve been on the fence about applying for a PPP loan due to uncertainty over forgiveness guidelines, or because you felt the rules around forgiveness would make it difficult for you to use the loan effectively, these changes should go a long way toward making the program more attractive.
Due to these rule changes, it will now be much easier for a business to take out a PPP loan and have it forgiven. You’ll have more time to use the loan, more flexibility on how to use it, and fewer barriers standing in the way of total forgiveness.
Eric Goldschein is the partnerships editor at Fundera.
Eric has nearly a decade of experience in digital media, writing and reporting on entrepreneurship, finance, business lending, marketing, and small business trends.