The Paycheck Protection Program Loan was Extended – What This Means for Small Businesses

Within the last two months, we’ve heard a lot about the Paycheck Protection Program (PPP) loan, which was passed and signed into law at the end of April. The loan has helped countless small businesses stay afloat during these trying times by providing them with the funds to stay in business, promise job security and bring back their employees. But, despite all of these benefits, the loan has also come with a number of stipulations regarding how it can be used and when it needs to be used by. On Friday, June 5, the Paycheck Protection Program Flexibility Act, an extension for the usage of the loan, was passed by Congress. 

Let’s take a look at how small businesses were affected by this tight deadline, prior to the extension, why the loan was extended, and what this means for small businesses moving forward. 

Issues businesses were experiencing prior to the extension  

1. Using the entirety of the loan in time. The original deadline to use the loan was 8 weeks from origination. Since many businesses were not able to open or bring their employees back until mid-May, this was a very tight deadline to work with.  
2. Having the correct number of employees returning to work (remotely or otherwise). One of the original conditions of the loan was that full-time headcount and wages needed to remain the same as they were when the business was fully operational. Given the fact that many companies had to furlough or lay off employees during this time, there was no guarantee that all employees would return or that there was even business to return TO.   
3. Spending 75% of the loan on payroll alone, which only left 25% of the loan to use for rent, mortgage and utilities. The payroll spend requirements did not set companies up for success for full forgiveness. 

What changed? Why was the loan extended?  

In an attempt to ease the restrictions, the Paycheck Protection Program Flexibility Act was passed to help small businesses with the challenges listed above. The changes brought about by the Paycheck Protection Program Flexibility Act, according to Forbes, include:  

• The window businesses have to use the funds has been extended from eight weeks to 24 weeks.  

• The portion of funds borrowers must spend on payroll has been reduced from 75% to 60%. 

• Businesses now have until December 31, 2020 to rehire workers.  

• There is an extension of the loan maturity date from two years to five years on PPP loans originated on or after June 5, 2020. 

What this means for small businesses  

The Paycheck Protection Program Flexibility Act will take a lot of stress away from small businesses owners who thought they had a finite amount of time to spend a large nut, whether their employees could return or not. Businesses can spend less time worrying about whether or not they will be able to use the entire loan in time and can instead focus on bringing their employees back to work and adapting how they do business during this time.  

If your company received a loan, but were worried about the conditions that came with it, you may now be feeling relieved. You can use this time to be strategic and to think about your game plan for the remainder of this year. Now is the time to start asking yourself these questions:  

• If you haven’t yet rehired all of your employees, when will you do so?  If you wait to do so, will they all come back, and if they do not, do you have a recruitment plan at-the-ready? 

• Now that less of the loan needs to be spent on payroll, how will you divide the funds? Of course, you can spend 100% on payroll for easier accounting if you so choose. 

• If your workload still doesn’t look like it did before the pandemic, how will you spend this time, especially if you have more employees on staff than you have work to do?  

 Ultimately, the extension of the Payment Protection Program is great news for small business owners. Even though the loan (with the original stipulations) was supposed to be a savior for small businesses, it ended up being a source of stress for many business owners. Now that there is more time to use the funds, fewer restrictions on how the funds need to be spent, and more time to rehire workers, business owners can focus on other issues that come with operating a business during this time.  

By Mallory McBride