SBA to issue new forgiveness guidelines for PPP loan recipients after Congress relaxes rules

The Trump administration said Monday it will release new rules and forgiveness guidelines for small business owners who received a loan through the Paycheck Protection Program.

In a joint news release, the Small Business Administration and the Treasury Department said they will “promptly” issue rules and guidance; a modified application form; and a modified loan forgiveness application after President Trump signed into law the Paycheck Protection Program Flexibility Act (PPFA).

A concern among small business owners who tapped the Paycheck Protection Program, a $610 billion fund established at the end of March, was that guidelines on how to spend the money were too strict and could potentially leave them on the hook for the money.

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The bipartisan law tried to alleviate this uncertainty, easing the rules on how small business owners need to spend the coronavirus aid money in order for it to be forgiven. Loan recipients are now only required to spend 60 percent of the aid on maintaining payroll, rather than the previous 75 percent rule. The money that can be spent on operating costs like rent and utilities increased to 40 percent from 25 percent.

The PPFA  extended the timeline for businesses to spend the money from two months to 24 weeks. However, if businesses choose to get the loan forgiven after eight weeks, they are still able to do so.

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Another key aspect of the PPFA is that it gives businesses until Dec. 31 to rehire workers in order for their salaries to count toward forgiveness; previously, they had until June 30 -- a problem for some in states where businesses were slower to open their economies. The employee salary eligible for forgiveness is still capped at $100,000.

The law also eased rehiring requirements for businesses. For instance, if a small business owner is unable to rehire an individual who was an employee on or before Feb. 15, or is able to prove they were unable to hire a similarly qualified candidate, their loan may still be eligible for forgiveness.

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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.

“This bill will provide businesses with more time and flexibility to keep their employees on the payroll and ensure their continued operations as we safely reopen our country,” SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin said in a joint statement.

The second round of PPP funding began April 27 after the initial tranche of $349 billion evaporated in just 13 days. As of Thursday, more than 4.5 million loans worth close to $511 billion had been distributed through the program. Congress allocated about $610 billion to the PPP, leaving roughly $100 billion left over in the fund.

In order to have their loan forgiven, small business owners must fill out an application, released in mid-May, and submit it to the bank or lender that approved their initial request. The application focuses on key criteria centered around what types of expenses are forgivable. It also includes a step-by-step calculator for determining forgiveness eligibility.

If the borrower received a loan worth more than $2 million, it will be automatically audited by the government, part of an effort to prevent large, public companies from accessing the fund.

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