As businesses around the country continue to reopen and bring employees back to work, Congress has passed amendments to the CARES Act and Paycheck Protection Program that will give borrowers more flexibility over how to spend loan money.
To help local business owners navigate the changes, the Santa Barbara County Chambers of Commerce hosted a webinar Wednesday featuring Jennings Imel, executive director of the U.S. Chamber of Commerce’s Western Regional Office, and Tony Vallejo, a partner at Nicholson & Schwartz Certified Public Accountants.
Despites months of financial stress and economic fears due to COVID-19, Mr. Imel began by highlighting the positive news that has come out in recent weeks. Just last week, the Department of Labor announced that the national unemployment rate had dropped to 13.3%, as 2.5 million jobs were added to the economy.
“Frankly, the Paycheck Protection Program has been pretty effective,” said Mr. Imel. “It’s done a great job of keeping employees on payroll and keeping folks tied to their employer, as was intended by Congress. I think that we’ve been pleasantly surprised with the impact that that program has had.”
According to a recent poll shared by Mr. Imel, 70% of small businesses with less than 20 employees said that PPP was critical to their businesses survival and keeping employees on payroll.
On June 5, 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.
One key provision of the act is that it extends the time period in which borrowers must spend their PPP loans from eight weeks to 24 weeks.
“It allows businesses to use that PPP money for a longer period of time, which is going to be helpful,” said Mr. Imel.
The act also lowers the percentage of loan proceeds that must be spent on payroll from 75% to 60%.
It also remedied a drafting error where businesses who spent less than 60% of their PPP funds on payroll would have none of their loans forgiven. The Small Business Administration released guidance clarifying that loans would be forgiven on a sliding scale.
“Even if you spend well below 60% you could still qualify for forgiveness, and the maximum amount of forgiveness that you could qualify for would be 60%, as long as it’s 60% on payroll,” said Mr. Imel.
The loan coverage period was also extended to Dec 31, giving borrowers more time to rehire and not have their forgiveness impacted.
“It also allows borrowers to defer their portion of the payroll tax. That was not an option according to the first CARES Act that was passed a couple months ago, so I think that’s going to be useful,” said Mr. Imel.
The measure also extended the loan term from two years to five years for the portion of the loan that is not forgiven.
Nonprofits remain excluded from the PPP criteria.
“That’s something in the U.S. Chamber we continue to push heavily on,” said Mr. Imel.
The primary benefit of the changes for businesses will be more time to prepare and qualify for full loan forgiveness come Dec 31. It also gives businesses who have not yet taken advantage of the PPP to apply for loans in the next six months.
If a business owner wants to have their loan forgiven early, they can apply as soon as banks are prepared to accept loan forgiveness applications. However, Mr. Vallejo advised against it.
“It’s probably not a good idea only because, as we’ve seen repeatedly with this program, it’s very fluid. Things may change again so you probably want to wait,” said Mr. Vallejo.
With other issues making the headlines in recent weeks, many in the community are unaware of the PPP expansions, said Mr. Vallejo.
“You can hear the calmness in their voice afterwards when I tell them ‘Don’t forget. Now you have six months.’ They all feel much better about this,” said Mr. Vallejo.
To date there have been more than 4.5 million PPP loans approved by the SBA totalling $511.5 billion. The average loan amount has been $112,730. With roughly $140 billion left in the program, there is quite a bit of lending capacity still available and it is not too late to apply, said Mr. Imel.
“We’re hoping that for folks that think this is going to be necessary for their business to survive over the next couple of weeks and months that they’ll consider taking advantage of this program because there is still so much money available,” said Mr. Imel.