Feds Make Welcomed Changes to PPP Rules

By Alan Wolf, YSN

President Trump signed into law today a new and improved Paycheck Protection Program (PPP) that should ease some of the program’s major pain points for dealers.

Chief among the improvements are an easing of the requirements for loan forgiveness, including a tripling of the time previously allotted for small businesses to spend their PPP funds, and reducing the amount that must be spent on payroll from 75 percent to 60 percent of the loan.

Under the updated law borrowers can choose to extend the eight-week period during which the funds must be spent to 24 weeks or Dec. 31, 2020, whichever comes first. According to attorney Mat Sorensen, CEO of Directed IRA & Directed Trust Co., many small businesses that received their PPP funds in April and May were unable to reopen within the original timeframe, often due to government restrictions.

“These small businesses were being hurt the most by the pandemic, and by extending the covered period to 24 weeks, Congress has greatly improved their ability to use their PPP funds to bring back workers to payroll,” he said in a column for Entrepreneur.

The reduced allocation of payroll costs will now allow borrowers to spend up to 40 percent of their PPP loans on other qualifying expenses such as mortgage interest, rent and utilities. However, the wording requires businesses to spend at least 60 percent of the funds on payroll or none of the loan would be forgiven. That’s in contrast to the previous “sliding scale” rule, which allowed portions of the loan to be forgiven if less than 75 percent of the funds are earmarked for payroll.

According to a report in the Journal of Accountancy, the change was unintended by the House, and Senators Marco Rubio (R-FL), Chairman of the Senate’s small business and entrepreneurship committee, and Susan Collins (R-ME), who chairs an employment and workplace safety subcommittee, intend to restore the sliding scale provision through “technical tweaks” to the bill.

Two other key changes are:

  • The extension of the repayment period from two to five years at the same 1 percent rate for new loans, and the same leeway for existing loans if the lender and borrower agree
  • Borrowers could now delay payment of their payroll taxes, which was prohibited under the CARES Act.

PPP funds are still available although the loan application deadline remains June 30. A summary of the program’s updated stipulations, compiled by the Economic Innovation Group, is available here.

YSN is published by AVB Inc.