The ups and downs and sideways changes with the Payment Protection Progam continue! On June 5th, President Trump signed into law the PPPFA (Payment Protection Program Flexibility Act).
Back in April, we posted this article on How to use your PPP loan. Since then, a bi-partisan senate committee made a few changes and alterations to the original Payment Protection Program. The changes came about after observing how the original program rules and stipulations worked and didn’t work. Most of the regulations in that article still apply with a few exceptions.
Here are a few highlights of the changes made: visit reachreporting.com or speak to your company’s loan officer.
Payroll from 75% to 60%
Loans distributed during the original PPP time frame stipulated that 75% of the loan amount had to be used to pay employees. This percentage was proving difficult for businesses that closed their doors during the height of the pandemic. The new PPPFA loans change that rule to 60% to be spent on payroll. This percentage change left more for overhead costs, such as rent, utilities, and loan interest.
Time Changes to Use the Funds
In the original PPP, borrowers had the option between 8 or 24 needed to use the funds in 8 weeks after disbursement. With the new legislation, borrowers can now take up to 24 weeks to use the funds and have them forgiven. This time frame is for all PPP loans no matter when the original loan was closed.
Maturity Date Changes
Loans made before June 5th were a 2-year loan, with 1% fixed interest. Since the changes on June 5th, all loans closed after June 5th now have a 5-year maturity date, still at a 1% fixed interest rate. Original PPP loans can be extended to 5 years if the bank and the borrower agree and modify the original note. There is no prepayment penalty on loans before or after June 5th, 2020.
The date change is good news for the business but not good news for the banks providing the loans. It may make finding a loan difficult.
PPPFA Loans Available to Ex-Felons
One significant change made but often overlooked is the ability for business owners with a felony conviction in their past to be eligible. Originally anyone with any felony in the last five years was not eligible to apply for a PPPFA. Now, the rule is only one year with this exception. The crime can not be robbery, embezzlement, or fraud. It also cannot be a false statement in a loan application or an application for federal financial assistance.
When PPP was initially created, one of the main goals was for a company not to reduce the number of employees and keep the same amount of payroll as was calculated in the loan application. It required that a company rehire back its employees before June 30th, 2020.
The new changes with PPPFA to follow to be eligible for loan forgiveness are;
- They are unable to rehire an individual who was an employee of the eligible recipient on or before February 15th, 2020;
- The business can demonstrate an inability to hire similarly qualified employees on or before December 31st, 2020.
- Able to demonstrate a failure to return to the same business activity level as such business was operating before February 15th, 2020.
The PPPFA changes are a win for small business, as it makes it easier to use the money to stay afloat during this uncertain time. It also opens the door to more applicants and makes loan forgiveness slightly less complicated. We can all agree that this will not be the last change we see in the program.
As stated before, this is only a highlight of a few of the changes. Please contact your bank/loan officer for more information.