The Paycheck Protection Program Flexibility Act
As of May 21st, 2020, in North Carolina 106,197 loans have been approved totaling $12.7 billion. 61% of North Carolina small businesses eligible for the program have been approved for the PPP. The new Paycheck Protection Program Flexibility Act was signed into law as of June 5th.
In the recent past, many small business owners have expressed their appreciation of the Paycheck Protection Program (PPP) but voiced their concerns that the funds were not flexible enough.
A bipartisan bill that provides many solutions to the problems facing our hardworking small business owners was signed into law. The Paycheck Protection Program Flexibility Act allows businesses to use PPP funds to the fullest potential.
The PPP Flexibility Act:
• Increases forgiveness for expenses from 8-weeks to 24-weeks.
• Increases amount of non-payroll expenses permitted from 25% to 40%.
• Eliminates restrictions that limit loan terms to 2 years.
• Ensures full access to payroll tax deferment for businesses that take PPP loans.
• Extends the rehiring deadline to align with the expiration of enhanced Unemployment Insurance.
• Adjusts program’s standards to account for economic realities following the coronavirus pandemic.
If economic conditions prevent businesses from reaching pre-coronavirus revenue levels and businesses aren’t able to rehire all employees, this legislation would make sure businesses are still able to receive loan forgiveness. It is hoped that these adjustments to the PPP will benefit businesses in North Carolina and help us on the road to recovery from the COVID-19 pandemic.
Specifically, the Paycheck Protection Program Flexibility Act legislation will:
1. Allow forgiveness for expenses beyond the 8-week covered period. The 8-week timeline does not work for local businesses that are prohibited from opening their doors, or those that will only be allowed to open with restrictions. Businesses need the flexibility to spread the loan proceeds over the full course of the crisis until demand returns. Otherwise, employees will simply be furloughed at the expiration of the 8 weeks. This provision will allow the businesses to choose between using their loans in the initial 8 weeks or extending the period for up to 24 weeks.
2. Eliminate restrictions limiting non-payroll expenses to 25% of loan proceeds. In order to survive, businesses must pay fixed costs. The PPP loans require that 75% of the loan go to payroll. For many businesses, payroll simply does not represent 75% of their monthly expenses and 25% does not leave enough to cover mortgage, rent, and utilities. Retaining employees is not possible if a business cannot retain their physical location
3. Eliminate restrictions that limit loan terms to 2 years. According to the American Hotel and Lodging Association, full recovery for that industry following both the September 11, 2001 terrorist attacks and the 2008 recession took more than two full years. This is the same for many other industries. If the past is any indication of the future, it will take many businesses more than two years to achieve sufficient revenue to pay back the loan.
4. Ensure full access to payroll tax deferment for businesses that take PPP loans. The purpose of PPP and the payroll tax deferment was to provide businesses with capital to weather the crisis. Receiving both should not be considered double-dipping. Businesses need access to both sources of cash flow to survive.
5. Extend the rehiring deadline to offset the effect of enhanced Unemployment Insurance. To receive loan forgiveness under PPP, a business must rehire employees by a deadline of June 30, 2020. However, the enhanced Unemployment Insurance created through the CARES Act is higher than the median wage in 44 states. Many businesses have reported an inability to rehire employees because they are making more on Unemployment than they made working. To mitigate this unintended consequence, the deadline to rehire employees under PPP should be extended to align with the expiration of enhanced Unemployment Insurance.
6. Adjusts program’s standards to account for economic realities following the coronavirus pandemic. If economic conditions prevent businesses from reaching pre-coronavirus revenue levels and businesses aren’t able to rehire all employees, this legislation would make sure businesses are still able to receive loan forgiveness.
The Paycheck Protection Program Flexibility Act is supported by the International Franchise Association, American Hotel and Lodging Association, National Federation of Independent Business, National Restaurant Association, US Travel Association, Small Business Majority, U.S. Hispanic Chamber of Commerce, National Small Business Association, National Association for the Self-Employed, Small Business and Entrepreneurship Council, and Economic Innovation Group.
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