Under new guidance from the Small Business Administration (SBA), the U.S. Treasury, Congress and President Trump, the Paycheck Protection Program (PPP) Loan Program has recently been extended until August 8th under the PPP Extension Act in order to, theoretically, incentivize more businesses to apply for loans. Although roughly 4.9 million loans have been distributed in the 3 months since the program creation, approximately $130 billion in funds are still available. Many speculate that the slowdown in applications is attributed to borrowers deeply concerned that receiving a loan would lead to potential audits. On June 22nd, new guidance, along with the extension, has been created by the SBA and U.S. Treasury in the hopes to not only clarify some concerns with the program, but also to attempt to make complete loan forgiveness more realistic for most borrowers.
Private Capital Group would like to provide you with a few major topics to help clarify the new guidance and PPP Loan Extension Act.
1) Lender expansion: Typically, most borrowers have worked closely with their bank, with whom they already have an established relationship. The SBA and PPP also state that those who wish to partake and receive a loan should also contact a credit union or other financial institution.
2) Loan forgiveness and low interest payments: All small businesses, including but not limited to, sole proprietors, self-employed individuals and independent contractors are eligible to receive a loan from the PPP. Businesses who receive a loan must spend that money from the loan within 24 weeks of receiving it. The loan amount must also be applied to eligible expenses only. The law now states that 60% of the loan amount must be used for payroll. The remaining loan amount can go towards rent, utilities, and mortgage interest payments. To receive loan forgiveness, the business must retain or rehire employees to levels prior to the pandemic. If you receive a loan and do not qualify for forgiveness, the loan must be paid back over the course of 5 years at a 1% interest rate.
3) Keep your payroll paperwork accessible: The application to receive a loan has been changed to help make it easier to apply. Some items that a lender may need to see for reference is your average monthly payroll, your number of employees, tax identification number and ownership information.
4) Other updated rules and guidelines:
Borrowers may apply for forgiveness at any time before or on the maturity date of the loan. If a borrower does not apply for forgiveness within 10 months after the last day of the covered period, or if the SBA deems that the loan is not eligible for forgiveness in any way, payments of principal and interest must begin. The lender will most likely notify the borrower of the first date of repayment for the loan.
Although there has been some confusion and, unfortunately, some fraud since the creation of the program, the PPP has been largely successful in helping provide smaller businesses with additional funds to help weather these turbulent times. More regulations are almost certain to arise, but more explanation and clarification will likely follow.
Please speak with your financial advisor if you should want more clarity in the PPP, or any other part of your financial plan.
We wish you and your loved ones all the best