Changes to the PPP: Here’s What You Need To Know
For many businesses, the Paycheck Protection Flexibility Act is their last fighting chance. The original Paycheck Protection Program, introduced to us on March 27 under the CARES Act, was enacted to provide up to $349 billion towards job retention and other expenses needed to protect small businesses in America. The first round of PPP allowed up to eight weeks of payments and benefits to be paid to small businesses to cover rent, utilities, mortgage, and any other expenditures. Apart from small businesses and nonprofits self-employed individuals or independent contractors can also qualify for the Paycheck Protection Program if they have less than 500 employees. Although the original PPP plan was made in great efforts, it had many faults. Many minority businesses, approximately 90%, could not receive these benefits, and black-owned small businesses were closing down at two times the rate of white-owned small businesses. As a matter of fact, about 100,000 businesses shut down within a month of the original PPP being created and about 7.5 million small businesses are at risk of closing if COVID-19 related closures continue on.
The Good: The Breakdown of Changes
Extended Timeline: Originally, the SBA could provide PPP loans until June 30, 2020. Under The Flexibility Act, the SBA’s timeline has been extended to provide PPP loans until Dec. 31, 2020. The time change allows six more months.
Loan Forgiveness Flexibility and Rehiring: In order to get loan forgiveness, small businesses must rehire employees that were laid off after Feb. 15, 2020. If the loans are not forgiven, a business will have five years at 1 percent interest to repay the loan, rather than the initial two years.
Payroll Taxes for Employees Whose Payroll Costs Are Covered by the Loan
The CARES Act permitted companies and independent contractors/ self- employed individuals to defer the deposit of the employer-portion of the social security tax(the 6.2 percent charge on wages) and 50 percent of the expense forced on the self-employed salary, separately. Be that as it may, the CARES Act additionally precluded managers from using the finance charge deferral after a PPP advance is excused. The Flexibility Act expels this limitation, permitting PPP borrower to use this deferral from March 27 to Dec. 31, 2020.
Term of the Loan and Repayment Timing: Originally small business, had about 8 weeks to use the loans and had to use 75% of the loan for payroll. Now they have a 24 week period to use the loan and only 60% has to be used on the payroll.
Overall these changes will help small business owners by easing the rules around the PPP. However, it is unknown yet how this will change the number of minority business owners who can get PPP loans.