U.S. Treasury Secretary Steven T. Mnuchin on Monday announced amendments to the Paycheck Protection Program that will give borrowers more flexibility over how to spend loan money.
Last Friday, President Donald Trump signed the Paycheck Protection Program Flexibility Act, which was passed by the House in late May and approved by the Senate on June 3.
“We want to thank President Trump for his leadership and commend Leader McConnell, Leader Schumer, Speaker Pelosi and Leader McCarthy for working on a bipartisan basis to pass this legislation for small businesses participating in the Paycheck Protection Program,” Mr. Mnuchin said in a statement.
So far the PPP has provided 4.5 million small business loans worth $500 billion “to ensure that approximately 50 million hardworking Americans stay connected to their jobs.”
“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,” Mr. Mnuchin said.
Small Business Administration and the U.S. Department of the Treasury will issue new PPP rules and change the loan forgiveness application process.
The SBA will extend the “covered period for loan forgiveness” or the period after businesses receive their PPP loan, from eight weeks to 24 weeks. Borrowers can elect to use an eight-week covered period, but the statement did not provide any benefit for doing so.
The new rules will also lower the current PPP requirement that 75% of the loan funds must be used for payroll costs and that 75% of the amount forgiven must have been spent during the loan forgiveness covered period to 60% for both.
“If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs,” the statement read.
The SBA will not reduce loan forgiveness for businesses that reduce their number of “full-time equivalent” employees if the business cannot return to the same level of business activity it had before Feb. 15 because of COVID-19 related requirements or guidelines. The SBA will also protect businesses that are unable to rehire full-time equivalent employees or “similarly qualified employees,” for unfilled positions by Dec. 31 from loan forgiveness reductions.
The new rules will extend the maturity of PPP loans approved by the SBA on or after June 5.
June 30 remains the last day on which the SBA can approve a PPP loan.
“We look forward to getting the American people back to work as quickly as possible,” Mr. Mnuchin said.