The House Just Passed Additional Paycheck Protection Program Loan Flexibility

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Today the House passed by an overwhelming margin a bill to cut small businesses more latitude in how they use coronavirus lifeline loans. Known as Paycheck Protection Program loans (PPP). These are the loans that, when used within the rules of the CARES Act may be completely forgiven, essentially turning into a grant.

The bill would lengthen the time small businesses have to use the loans in order to have them forgiven from eight weeks to 24, reflecting the longer-than-expected length of the coronavirus countermeasures.

It also would reduce a requirement, set by the administration, that companies use 75 percent of the loan funds on payrolls to 60 percent. Many businesses, particularly shops and restaurants where expenses like rent often far outweigh labor costs, said the rule was too tight.

The bill also would lengthen the repayment term for that portion of the PPP loan not forgiven. PPP loan funds used for purposes other than payroll and fixed costs must be repaid with a 1 percent annual interest. Congress allowed that repayment period to be up to 10 years, but the administration set it at two years. The bill would reset it at five years, which will lower the size of each payment, making the unforgiven debt easier to manage.

What next?

Predicting anything to do with politics in our capital is impossible these days, but it does appear more likely than not that there will be some changes to the House-passed measure as it goes through the Senate. The House-passed bill is different from a bipartisan measure the Senate tried to “hotline” one week ago but failed to move forward. That bill would have only lengthened the time period to use the loans from eight weeks to 16 weeks.

Also, the Senate bill of last week did not loosen the existing 75% requirement for spending to be on payroll as opposed to other qualified expenses.

Don’t Rush to Apply for Your PPP Loan Forgiveness

While not many businesses are yet at the magic 8-week period to use the PPP funds, if you are don’t rush to apply for forgiveness. Right now, it is best to watch how the legislation plays out over the next week or two. This will give you the best opportunity to get the greatest amount forgiven. We will be discussing your business PPP loan status and opportunities with you in greater detail as the situation unfolds. In the meantime, if you have any questions or concerns please do not hesitate to contact us by emailing us at help@schollcpa.com or calling us at (831) 758-5966.