But they may also have gotten a bit more complicated too — at least for those small business owners who already secured a PPP loan under the old rules and want to take advantage of the new ones.
One of the biggest concerns with the program was that it hamstrung business owners in terms of when and how they could use the money if they wanted their loan to qualify for full forgiveness. Those who have gotten loans already had to spend the money in the first eight weeks and use at least 75% of it for payroll expenses — even though many businesses weren’t even open during that period or were not operating at full capacity.
Here are some of the ways the new rules could give business owners more flexibility with the way they use their loans and still qualify for forgiveness:
More time to spend the money: Instead of eight weeks, borrowers now will have 24 weeks from the day they get their PPP funds to use them.
Less money must be dedicated to payroll: To qualify for full forgiveness of their loans, borrowers now must allocate at least 60% of their PPP funds for payroll expenses and may use the rest to pay for overhead costs such as rent, mortgage interest and utilities. This change will help small businesses operating in high-rent areas. If a business owner spends less than 60% on payroll she may still qualify for partial forgiveness. The same principle applied under the old rules but the threshold percentage was less than 75%.
More time to rehire staff: To qualify for full forgiveness under the old rules, business owners had to maintain the average number of employees they had on staff as of Feb. 15 and pay them at their same rate. Or they at least had to meet those criteria by June 30. The new rules extend that safe-harbor date to Dec. 31.
Full forgiveness also may be available when a business can’t hire back their full staff under Covid-related workplace safety requirements mandating that they operate at less-than-full capacity.
More time to repay: Under the old rules, any portion of the loan that was not forgiven had to be paid back within two years. That has been extended to five years for loans made on or after June 5. For owners who got their loans before June 5, they can make an agreement with their lender to extend their repayment period, said Veena Murthy, a principal at accounting firm Crowe LLP.
Who benefits? Who doesn’t?
The new rules certainly can benefit small business owners who have not yet closed on a PPP loan. The good news is that the program still has $131 billion left, per the Small Business Administration’s latest count. But June 30 remains the last day by which a PPP loan application can be approved. So anyone who hasn’t applied yet should do so soon.
Treasury and the Small Business Administration said Monday they will issue guidance on how the changes should be interpreted and administered by lenders — along with amended application forms.
But the new rules likely will not benefit small business owners who received their PPP loans early, are at or near the end of their eight-week period and have spent most — if not all — of their funding in accordance with the old rules.
And how about those already in the process? Small business owners who already got their PPP loans but haven’t spent the bulk of the money yet may benefit. But a number of technical issues will need to be addressed by the Treasury and SBA before they can make an informed decision, said David Pommerehn, general counsel for the Consumer Bankers Association.
The best advice for small businesses? “Wait to see what the guidance and rules are and then consult with your accountant,” said Brian Pifer, vice president of entrepreneurship at the advocacy group Small Business Majority. Or whatever other expert you’ve been consulting until now, such as a lawyer or your lender.
For all small business owners with PPP loans, the issue of forgiveness has been the most vexing. While the new rules will ensure more are likely to see their loans forgiven, they still must go through a lengthy application process to show they’ve met all the criteria.
The CBA has been advocating for automatic forgiveness of all loans under $150,000 — which accounts for roughly 85% of the loans made so far, but only 26% of the funds lent out so far. Such a move would save more than $7 billion and 70 million hours of labor, the CBA estimates.