By Lenore Fedow
Congress passed the Paycheck Protection Program Flexibility Act last week, giving small businesses more time to make use of the loans.
New York—Congress passed the Paycheck Protection Program Flexibility Act last week with the goal of addressing the problems that have plagued the program’s rocky rollout.

Signed into law as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, PPP grappled with administrative and technical issues as applications from small businesses poured in, eventually running out of money before being replenished in late April.

President Donald Trump signed the program update into law Friday after the bipartisan bill received unanimous consent in the Senate and passed 417-1 in the U.S. House of Representatives with Rep. Thomas Massie (R-Ky.) as the only dissenting vote.

Here are the five major updates to the bill:

The loan coverage period has been extended.

The coverage period has been extended from June 30 to Dec. 31.

“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,” said the Small Business Administration’s Jovita Carranza and U.S. Treasury Secretary Steven Mnuchin in a joint statement Monday following the bill’s passage.

June 30 is still the deadline to apply to receive a PPP loan.

“If you’re interested, there’s still time to get a loan,” said Benjamin Ross, an associate at law firm Fisher Phillips, during a webinar hosted by Jewelers of America on the PPP update Thursday. “There is still money available.”

More than $130 billion was left in the fund as of Tuesday, according to a New York Times report, due in part to confusion surrounding how to use the money.

Phillip Bosen of Bosen Associates, a consultancy firm for retail jewelers, said PPP has been a “hot topic with most of my clients,” in an email to National Jeweler.

Bosen, who got his start at his family’s jewelry store at the age of 12, works with retail jewelers of all sizes.

While some jewelers have not applied, said Bosen, many who did received the first round of funding.

“Generally, they are grateful for the PPP and for the relatively quick response from the banks,” he said.

Retailers have more time to distribute the funds.

Loan forgiveness has been expanded as part of the update.

Instead of the initial eight weeks, recipients now have 24 weeks or until Dec. 31, whichever is earlier, to allocate the money.

Previous time constraints have posed a problem for retailers, especially restaurants, unable to open and in need of more time to distribute the money.

Recipients who got a loan before the update passed have the option to stick to the original eight-week loan period.

If you spent all or almost all of your money before the update, you may want to stick to the eight weeks, said Ross.

“If there’s a chance you might have to lay employees off before the end of the year, your best choice is to get your [loan] forgiven before there’s a layoff,” he added, noting that the layoff will affect the full-time employee count, which may impact the reduction you receive when applying for forgiveness.

More of the money can be used for non-payroll expenses.

To receive loan forgiveness, recipients have to use at least 60 percent of the loan for payroll costs, lower than the previous 75 percent requirement.

This change allows 40 percent to be used for non-payroll expenses, an increase from the previous limitation of 25 percent.

The previous limitation was a source of concern in particular for retailers in major cities struggling with high rent prices.

Rent is considered a non-payroll expense, as is interest on mortgages, but the loan may not be applied to the principal.

Leases are also covered, said Ross, which can mean vehicle, equipment, and storage unit leases.

Utilities are considered a non-payroll expense, including basics, like water, heat, and electricity, as well as internet, cell phones, trash hauling and security alarms.

Partial loan forgiveness is now alsoan option for borrowers who, during the covered period, used less than 60 percent of the loan for payroll so long as 60 percent of the amount eventually forgiven does go to payroll.

According to an example given by the SBA: "If a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54 percent) of its loan on payroll costs, then because the borrower used less than 60 percent of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000."

There is more time to pay back the loan.

If for any reason a PPP loan is not forgiven, borrowers have to repay that to the lender.

The update gives recipients more time to do that, with exceptions, extending the maturity date on loan amounts after the forgiveness period to a minimum of five years rather than the previous two-year period.

As for the exceptions, note that for loans made on or after June 5, the repayment term is a minimum of five years and a maximum of 10 years.

For loans made prior to June 5, the two-year term is the default but borrowers can contact lenders to agree upon a longer term.

In an update Wednesday, the SBA and the U.S. Treasury noted it expects five years will be sufficient, adding “the considerable economic disruption caused by the coronavirus is expected to abate well before the five-year maturity date.”

The act also defers payments, including principal, interests, and fees, for unforgiven parts of the loan until lenders decide on forgiveness, rather than the previous time period of six months from the date of loan origination.

The interest rate of 1 percent remains the same.

The change, “is helpful because it’s kind of murky when forgiveness will happen,” said Ross. “We’re not sure how quickly lenders will move.”

Under certain conditions, a reduction in the number of full-time employees may not mean a reduction in loan forgiveness.

The update to PPP outlines “safe harbor” circumstances in which a reduction in the number of full-time employees does not count against a recipient’s loan forgiveness.

If a recipient can show, with the proper documentation, that it was unable to rehire an employee who worked there as of Feb. 15 and can also show an employee with similar qualifications could not be hired, that may not affect loan forgiveness.

Ross recommended tracking your hiring processing, including noting where the job listing was posted and how many applications you received.

Loan forgiveness may also be unaffected if the recipient can demonstrate it was not possible to return to the same level of business it had prior to Feb. 15 because of safety guidance issued between March 1 and Dec. 31. by health officials, including the Centers for Disease Control or the Occupational Safety and Health Administration.

Factors standing in the way of business as usual may include social distancing, sanitation, or other safety requirements.

“Banks want to forgive these loans. Having a 1% loan sitting on the books is not a winner for them,” said Ross, adding that while banks may be able to sell these loans, the cost of doing so likely won’t cover the difference or turn a profit.

Still confused? Hold onto your paperwork and use your best judgement.

As there may still be aspects of the program that are unclear, Ross recommended reaching out to your lender with any questions.

He also stressed the importance of keeping good documentation, going back at least six years, when applying for loan forgiveness.

“Recording everything and having paperwork for everything is probably your best friend here,” he said, adding it’s also helpful to track the rationale for why you did something.

“With how much the guidance has changed as we’ve gone along, having that rationale can be really valuable to you later on down the line.”

The program has been set up in a way that lenders may honor guidance that employers acted on when they got the loan, said Ross.

If you made a decision based on available guidance, pointing to that guidance may increase your loan forgiveness chances, he said.

If you’re feeling unsure about a decision, think about how that decision lines up with the goal of the program, said Ross, which is to maximize compensation for employees.

“The way to best check yourself to see [if] this will be forgivable, is by saying ‘Why am I doing this?’” he advised.

“If you’re giving money to employees, if you’re trying to help your employees, there’s a chance that that’s forgivable. If you’re trying to put money in your own pockets, there’s less of a chance it’s forgivable.”

For more information about the Paycheck Protection Program, visit the Small Business Administration’s website.

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