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More Flexibility with New PPP Loan Changes

Congress approved and the president signed a series of changes to the Paycheck Protection Program (PPP) that will ease several challenges facing small businesses. Although some questions remain, the alterations are a significant relief for small business owners who found the original program too restrictive.

Called the Paycheck Protection Program Flexibility Act (PPPFA), the bill enacted June 5 addresses concerns expressed by small business owners regarding the first two PPP efforts aimed at providing COVID-19 relief for small businesses.

One of the biggest changes involves a reduction from 75% to 60% for the amount of PPP loans that must be spent for payroll. The additional funds now allowed for other expenses will allow additional flexibility requested in the program by many small businesses. It does not change the list of forgivable expenses allowed under the program.

Two other changes involve timing. The new bill extends the time period for use of the funds from eight to 24 weeks and moves a June 3 deadline for rehiring workers to Dec. 31. The bill also eases requirements for the number of employees brought back. All of these changes should give business owners and managers considerably more flexibility in terms of real-world challenges.

For businesses repaying PPP loans, the terms are pushed from two to five years, at 1% interest, for loans or portions of them that are not forgiven. Related changes mean a business could wait until May of 2021 to make the first payment on the loan.

Other changes include allowing small businesses to take a PPP loan and still qualify for a recently approved tax credit. Still another change allows businesses to defer payroll taxes, which was prohibited by earlier PPP regulations.

The issue of loan audits was not dealt with directly, but it appears likely that with the relaxed regulations and real-world limits audits may not be as large a concern as originally feared. For one thing, over four million PPP loans were issued and the government lacks the resources to audit more than a fraction of that number.

For more information, see this article in Forbes online and this article in the Business Journals.

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