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What It Means: President Signs Paycheck Protection Extension


President Trump has signed the Paycheck Protection Flexibility Act into law, extending the amount of time Paycheck Protection Program (PPP) loan recipients have to spend their funds from eight weeks to 24 weeks. It also lowers the portion of funds borrowers must spend on payroll costs to 60 percent, down from 75 percent in order to qualify for forgiveness of the full PPP loan amount.

If your small business won some of the billions of dollars in Paycheck Protection Program (PPP) loans, you now have longer to spend the money. It’s also easier to convert that loan into a grant so you won’t have to repay it.

This smooths the path for small-business owners to qualify for loan forgiveness. The House of Representatives last month approved the legislation after business owners complained about spending requirements forcing businesses to use 75% of the loan on payroll. The Senate approved the measure by unanimous voice vote last this week.

The loans, part of the Coronavirus Aid, Relief, and Economic Security Act (CARES), are meant to help owners cover payroll costs, rent and utilities.

Here are six ways the law attempts to make using PPP loans easier:  

  1. You now have 24 weeks to spend your funds, up from eight weeks .

  2. You need to spend 60% of the loan on payroll, down from 75%.

  3. The covered period of the loan now ends Dec. 31 instead of June 30.

  4. You won’t have to make employer payroll tax payments through the end of 2020.

  5. Your business will not lose any loan forgiveness eligibility if you can show that some employees declined to return to their jobs or the pre-pandemic headcount is no longer required.

  6. The payback period for new loan applicants has been extended from two years to a minimum of five for those not seeking or who are ineligible for forgiveness.

Why the Changes?

Most businesses that have received PPP funds are in the middle of or nearing the end of their eight-week loan forgiveness period, According to a survey by the National Federation of Independent Businesses. Owners had complained the original loan forgiveness terms were both too narrow and difficult to implement.

Of those who have received funds, the NFIB survey revealed that about 20% of borrowers found it challenging to rehire employees who didn’t want to return to work amid fears of falling ill or because their unemployment benefits were more than their work wages. And in some cases, a sharp decline in patronage made it unnecessary for some businesses to fully re-staff within an eight-week window.

“These are the types of changes that everyone has been calling for and are basic pragmatic things,” says Amanda Ballantyne, executive director of The Main Street Alliance, a small-business advocacy group.

The original PPP program was launched on April 3. It allocated $349 billion in assistance to small businesses, but the program ran out of funds in just 13 days. 

Since its rollout, the execution of the PPP program has been plagued by glitches, including loans being made to several publicly-traded companies who may have been able to generate cash through other means.

How This May Affect Small-Business Owners

There’s no single clearinghouse containing all of the most-up-to-date information, which further hampers owners’ ability to understand the changes. Most of the details can be found by combing through a combination of the latest legislation and via the FAQ page on the website of the Small Business Association, which administers the program.

For those who use payroll companies, filing for forgiveness may be a bit easier, as those companies can provide the highly detailed documentation and information required for a PPP loan to turn into a grant. But those who do their own bookkeeping may find it challenging to get all the details right.