House Bill Gives Businesses Greater Flexibility and More Time to Use PPP Loans

Small businesses across the country are relieved to hear that they now have more flexibility in using the Paycheck Protection Program loans after the Senate unanimously approved a House bill the end of May that amends rules of the program. Known as the Paycheck Protection Program Flexibility Act, this house bill includes two sought-after changes:

• Small business owners now have more time to use emergency loans,
• And borrowers are allowed to spend less of their loan proceeds on payroll.

The original intent of the Paycheck Protection Program (PPP) was to help small business owners keep their workforce employed through the coronavirus (COVID-19) crisis. Established in late March, the program received $670 billion in total funding (through both March’s $2.2 trillion CARES Act and April’s $484 billion relief package). 

As long as all employees were kept on payroll for eight weeks and the money was used for payroll, rent, mortgage interest or utilities, businesses were offered loan forgiveness. Created by the $2.2 trillion coronavirus relief law – the CARES Act – the PPP began issuing these forgivable loans to small business owners in April.

As business owners have increasingly felt the impact of the economic shutdown and are now beginning the gradual process of slowly reopening (in some locations), they have expressed concerns around PPP loan forgiveness. They have shared that in order to get back to “business as usual” they need more time and greater flexibility to use the funds – the Paycheck Protection Program Flexibility Act seeks to address this.

First, the bill extends the length of time businesses have to use the loans from 8 weeks to 24 weeks. It also pushes back the full forgiveness qualification deadline of rehiring workers by June 30 to December 31. Small businesses are also now permitted to repay loans over five years, rather than two and defer payroll taxes. Before, the requirement was that businesses use 75% of the funds on payroll, but that amount has now been dropped to 60%. (The 1% interest rate on the loans remains the same.)

“Small businesses continue to have a tough road ahead, and they need flexibility in how they use this emergency capital,” said Democratic Rep. Nydia Velazquez of New York in a floor speech on Thursday morning before the vote.

While these changes are very welcome, it may still prove to be challenging for many small business owners to secure funding through the program. Many small businesses, for example, have low payroll costs relative to other expenses, which will make it difficult or impossible to meet the 75% threshold. For this reason, many entrepreneurs are choosing to seek alternative funding elsewhere (e.g. merchant cash advance, personal savings, etc.) to meet payroll and try to keep their doors open.

Author Bio: Michael Hollis is a Detroit native who lives in Los Angeles. He is an account executive who has helped hundreds of business owners with their merchant cash advance solutions. He’s experimented with various occupations: computer programming, dog-training, scientificating… But his favorite job is the one he’s now doing full time — providing business funding for hard working business owners across the country.