In response to the COVID-19 pandemic in the United States, the federal government has issued an economic lifeline to business owners. The federal government’s first payment protection program was worth $ 350 billion and was exhausted within two weeks of its enactment on March 27. The second round of PPP funding, released on April 24, was $ 250 billion and funds are still available. US business owners have until June 30 to apply for PPP funds in the second round.
On Friday, June 19, the Small Business Administration will table its 19th revision of the PPP Flexibility Act. Among the alleged changes are the cancellation of loans to self-employed workers and independent contractors, as well as other key changes regarding loan repayments.
For businesses and self-employed people who have received PPP loans, this has been a lifeline. This meant being able to keep employees on the payroll and cover eligible expenses such as rent and utilities during the COVID19 shutdown. When the program was first announced, business owners had only 8 weeks to spend the money from the time it was credited to their account and no payments were required for the six first month of two-year loan at 1% interest. If the borrowers used the funds for approved expenses, the loan would be completely canceled and the local bank reimbursed by the federal government. The new rules give businesses 24 weeks to spend the money and extend the loan maturity date to five years.
In April, when the first round of PPP disbursed, neither bankers nor loan seekers understood who was going to grant the remission – the banks or the federal Small Business Administration that issued the funds.
“The borrower certifies and the lender verifies,” said Maggie Sayer, CEO of Keys Federal Credit Union, explaining that it is up to the business owner to complete the 11-page application, or the shorter “EZ” application. . Then the bank checks the calculations or, for example, that a utility bill covers the applicable dates. The SBA will make the final decision.
“We are always waiting for more advice,” said Sayer.
Here are the top five changes to the new PPP rules:
- Instead of 8 weeks to spend the money, businesses now have 24 weeks from the date the loan is disbursed. But borrowers who have been approved for the 8 week deadline can still pay it off sooner or provide documents to certify that the loan was spent correctly.
- The first PPP rules stipulated that companies had to devote 75% of the loan to labor costs. This threshold has now been lowered to 60%. This means that if the loan amount (average monthly salary costs multiplied by 2.5) does not equal the 60% salary costs, borrowers could still get a partial discount. For example, if a company received $ 100,000 to pay 10 employees, but only had 5 of its employees who were actually paid, part of the loan still needs to be repaid. The amount is determined by a mathematical formula included in the request.
- The new rules include two “safe harbor” provisions for businesses that were not legally able to resume the same level of business activity due to federal orders (for example, bars in Florida that were closed. March 17 to June 1 or 11 weeks) and companies that were unable to staff the same levels of staff before COVID-19 because they are unable to find qualified employees for unfilled positions. Under the old rules, borrowers had to restore wages and operate at full volume by June 30. The new date is December 31, 2020, if they opt for the 24 week extension.
- The latest rule revision implements a five-year maturity period for new loans closed on or after June 5, 2020 and allows lenders and borrowers to mutually extend the previous maturity date of 2 years for loans issued before June 5.
- Finally, it leaves a little leeway in the timing of the borrower’s payment of principal, interest and charges on these loans, extending it until the date the SBA delivers the remission documents from the loan. borrower, not the applicant.
Keys Federal Credit Union has issued $ 6.2 million in PPP loans so far. According to Sayer, more than 200 local businesses applied. She said about 10% of them used the funds and explained their expenses.
“Most of those who were approved in the first round of funding are good to go,” Sayer said. “But we told them to keep their papers because we don’t know what the SBA’s next step will be.”
According to First State Bank spokesperson Angie Walterson, the bank continues to accept and submit loan applications on behalf of businesses in the Florida Keys. To date, First State Bank has helped nearly 900 Monroe County businesses retain or rehire thousands of local employees by securing more than $ 53 million in P3 funding. “Due to the pending changes mentioned above, no PPP loan client has requested or received a waiver from the SBA at this time,” she said.
Again, business owners and self-employed people have the option to apply for the second round of PPP funding. According to Forbes magazine, as of June 17, there was still $ 146 billion available.
Federal Treasury Secretary Steven Mnuchin and National Economic Council Director Larry Kudlow recently announced that companies that have received PPP loans should not be identified. Some large companies that are publicly traded companies have been identified as beneficiaries of PPP because they were required to share this information with the Securities and Exchange Commission.
PPP loans are part of the CARES Act, or the Coronavirus Aid, Relief and Economic Security Act.
