There has been a lot for small businesses to process during this time. Many of you had to temporarily shut down, and some are still now closed. For those that reopened, it’s likely that you’ve made significant adjustments to your operations, including capacity, store hours, staffing, and checkout processes.

On top of all that, it’s almost certain that you’ve seen a loss in revenue. Thankfully, the federal government has offered small businesses substantial financial assistance through the Small Business Administration (SBA). The Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL), and Express Bridge Loan (EBL) were all released as part of the CARES Act.

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Over 10 million applications have been submitted and the government has deposited hundreds of billions of dollars to small businesses across the country. But many businesses have struggled to navigate the fine print of these loans and grants, particularly the PPP. Luckily, in an effort to help SMBs avoid PPP fraud, the U.S. Senate just passed the Paycheck Protection Program Flexibility Act of 2020. Approved by the U.S. House in late May, it’s expected that the bill is signed into effect shortly.

What Did the Paycheck Protection Program Offer Small Businesses?

  • Any business with fewer than 500 employees (with some exceptions) that was in operation on February 15, 2020 is allowed to apply.
  • Applications opened April 3, 2020 and end June 30, 2020.
  • Loans are granted for up to 2.5x a business’s average monthly payroll. 
  • Loan money can be used primarily for payroll purposes, but can also be used for rent, mortgage interest, and utilities.
  • This includes contract work, sick, vacation, and parental leave, retirement benefits, commissions, and interest on existing debt.
  • Loan repayment can be deferred 6 months and interest cannot exceed 4%.

How Does Loan Forgiveness Work?

The SBA has offered to forgive the entirety of loans should small businesses adhere to certain stipulations.

  • All employees must have been paid in full for at least 8 weeks following the delivery of the loan.
  • 75% of the loan must be allocated to payroll.
  • Wages cannot be reduced by more than 25%.
  • Any reduced wages must be returned to their original amount by June 30.
  • Applications for loan forgiveness must be made through the same lender through which you applied for the loan.
  • Business owners must be prepared for an audit to prove that they needed the loan.
  • You must provide all mortgage, lease, or utility bills to prove the total payment amount.

Is There Any Chance of Fraud Surrounding the PPP?

Many businesses have expressed concern about the lack of clarity in some terms of the PPP. Of course, the worry is that a legitimate loan claim might require repayment, or worse, lead to legal repercussions. There are some basic steps, however, that can help alleviate the risk of any fraud charges:

  • Make sure your claim in good faith is true and certified.
  • Compile your business finances over the year leading up to the loan application to show that a change in your revenue.
  • Open a separate bank account with the loan money to easily keep track of all related expenses.
  • Be sure you’re applying the capital of the loan to valid areas of business operations.
  • Speak with your bank or lender to get advice.
  • Check about use of other loans to be sure they can be used in conjunction with the PPP.
  • Have a contingency plan in place to repay the loan, just in case.

What Does the Payment Protection Program Flexibility Act Change for SMBs?

In an effort to help take further burden off of struggling small businesses, the act has pushed back some timelines and changed how loan money can be used. Below are the main items it has adjusted.

  • Loan money can now be used over a 24-week period instead of the original 8-week period, so long as this period doesn’t move beyond December 31. 2020. This was put in place to help more businesses reach the criteria for full loan forgiveness.
  • The requirement for payroll use has dropped from 75% of the total loan to 60%. If a borrower fails to spend 60% of the loan on payroll, none of the loan is eligible for forgiveness. ***When the loan required 75% to be spent on payroll, failure to do so resulted in a sliding scale of forgiveness, meaning that failing to reach that threshold didn’t result in automatic disqualification of any forgiveness. With this change, that sliding scale is still being debated and subject to change.
  • Small businesses now have 24 weeks to restore employees to pre-loan wages instead of 8 weeks, with the new deadline at the end of the year.
  • There are now exceptions for receiving full forgiveness even if the business is unable to fully restore its pre-pandemic workforce. Borrowers can exclude those employees who turned down offers to return. It also allows room for adjustments for borrowers who were unable to find qualified new hires.
  • Should repayment be required, loan recipients now have 5 years to repay instead of 2 years. The interest rate will remain at 1%.
  • Payroll taxes can now be delayed in conjunction with the PPP loan.

More COVID-19 Advice for Small Businesses

As always, consult your lending institution and any accessible legal advice to be sure that you’re in compliance with all up-to-date regulations. This is a dynamic situation and likely to see further change. Keep an eye on all related matters and we’ll try to keep our readers updated with any new relevant information.

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