On April 24, the president signed into law the Paycheck Protection Program and Health Care Enhancement Act (PPP Act) to afford further COVID-19 relief. The PPP Act represents the fourth major emergency relief package to address COVID-19.
This act provided $484 billion in additional funding to replenish key programs under the CARES Act, including the PPP and small business disaster loans and grants. It also provided funding for hospitals and health-care providers, and expanded testing for COVID-19.
The PPP Act provided an additional $310 billion in PPP loans to help small businesses keep their employees on the payroll. This included $30 billion in guaranteed loans to credit unions, community lenders, and banks with less than $10 billion in assets, and $30 billion in guaranteed loans to lenders with $10 billion to $50 billion in assets.
This set aside $60 billion to ensure more PPP funds went to “mom and pop” shops, minority-owned businesses, and underserved communities rather than large corporations.
Because the PPP Act replenished funds for the PPP, the SBA resumed accepting PPP loan applications and disbursing PPP funds on April 27. Within five days, PPP loan approvals reached an additional $175.7 billion before slowing considerably.
Through May 30, the SBA guaranteed 4,475,599 PPP loans for $510.2 billion, including cancellations and funding. The overall average loan size was $114,000.
This meant that more than $140 billion remained unspent a month later. This slowdown may have been due in part to uncertainty as to how funds could be spent to be forgiven, concerns about unclear repayment terms, and duplicate applications submitted to multiple lenders during the initial mad dash for funds.
The slowdown in borrowing resulted in additional legislative changes to loosen PPP rules. On June 5, the president signed into law the Paycheck Protection Program Flexibility Act (PPP Flexibility Act) to provide small businesses with greater flexibility and more time to use their PPP funds.
The PPP Flexibility Act extended the period borrowers can apply for loan forgiveness from the original eight weeks to 24 weeks after the date of disbursement to the PPP borrower, but not later than Dec. 31, 2020. These changes increase the likelihood that a large percentage of loans will be forgiven.
The act also expanded the covered period a borrower must spend PPP loan proceeds to be eligible for forgiveness from eight weeks to the earlier of 24 weeks after loan origination or Dec. 31, 2020. This allows PPP borrowers a longer period to spend PPP loan proceeds and have them count toward forgivable costs.
The maturity for forgiveness of any portion of a remaining balance on a PPP loan disbursed on or after the date of enactment of the PPP Flexibility Act was extended from a two-year maturity date to a minimum of five years. For existing PPP loans, borrowers and lenders can mutually agree to a loan maturity date that is longer than the two years stated in the SBA regulations.
The PPP Flexibility Act reduced the amount a PPP borrower must spend on payroll costs to 60% from 75%, thereby allowing 40% of the PPP loan proceeds to be spent on non-payroll costs including covered mortgage interest, rent, or utilities. This means PPP borrowers can use more PPP funds on permitted expenses other than payroll costs.
The CARES Act requires certain reductions in a borrower’s loan forgiveness amount for reductions in full-time equivalent (FTE) employees or in employee salary and wages during the covered period. The CARES Act included a safe harbor if the PPP borrower restored employment or salary and wages prior to June 30. The PPP Flexibility Act extended this safe harbor date from June 30 to Dec. 31, 2020. If the FTE employees or the salary and wages are restored to Feb. 15 levels any time before Dec. 31, 2020, no reduction in forgiveness will be required.
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