The Payment Protection Program (PPP) was originally put in place to help small businesses financially during the Covid-19 crisis. Over $500 billion in loans were processed in the past couple of months, but with the loans came certain caveats when it came to spending the money.
To recap, in order for the business loans to be forgiven, 75 percent of the funds needed to be spent within 8 weeks of receiving it however, for most businesses, that deadline has come or will be coming soon. The loans were put in place to help small businesses when it came to payroll, rent, and utilities expenditures.
Fortunately, the Paycheck Protection Flexibility Act was just signed into law, which should ease the tension that many small businesses were having when it came to spending the funds according to the rules. The act effectively modified the original rules in order to make it easier for small businesses to be forgiven for the loan.
What are the modifications to the rules?
- Instead of 8 weeks to spend the funds, businesses now have 24 weeks
- Only 60 percent, as opposed to 75 percent, of the funds has to be used for payroll
- The loan period now ends on December 31. The previous deadline was June 30
- Employer payroll tax payments have been deferred through the end of 2020
- Your PPP loan will still be eligible for forgiveness if you can prove that some of your employees did not return to their jobs
- The payback period for the loans have now been extended to a minimum of 5 years for those who are not seeking loan forgiveness
Why were these changes implemented?
The original PPP program that went into effect on April 3 – in which $349 billion was allocated to grant the small business loans – was quickly exhausted within 13 days. After some further legislation, another $310 billion was allocated to fill the additional PPP loan requests. However, the loans came with a set of confusing rules as to how they could be forgiven or paid back.
During this time, many small business owners complained about the forgiveness terms and the National Federation of Independent Businesses (NFIB) revealed that around 20 percent of the businesses that received funds found it hard to rehire their employees as many of them either feared getting ill or found that the unemployment benefits paid more. This inability for certain businesses to rehire employees resulted in a tough time meeting the eight-week hiring deadline.
Additionally, there have been many questions regarding the loan forgiveness and the rules attached to the PPP loans, however, having a third-party payroll company can help.
LTD Global Can Help!
Are you finding that the PPP loan rules are still confusing or need help with your payroll and accounting calculations? LTD Global is here to assist you. LTD Global has been assisting small businesses and non-profit organizations for years and can help your business during these stressful times. To find out more, please contact info@ltdglobal.com for more details.