Plenty of money is left in this forgivable loan program. And changes to the rules may make it newly attractive to your store or studio.
The Paycheck Protection Program for small businesses (and solopreneurs) hasn’t been without its glitches, including frequent changes in rules, confusion and delays with the application process and controversies about who was getting the money. But now, with $129 billion still left in the fund, the forgivable loan has been improved in ways that give businesses much more flexibility on how and when to spend the funds. As a result, many more businesses are likely to see their whole loan forgiven. The deadline to apply has not been changed; the bank must send your application to the Small Business Administration (SBA) by June 30, 2020. Here’s an update so you can decide whether this stimulus program is right for your business, and a few ideas about where to apply.
What the Small-Business Community Wanted
The Paycheck Protection Program Flexibility Act (PPPFA), signed into law June 5, addressed some issues the small-business community had with the original program. Launched in early April, PPP offered small businesses a loan equal to two and half times their average monthly payroll expense, to be spent on eligible expenses (payroll costs, mortgage interest, rent and utilities) in the eight weeks after receiving the funds. The interest rate was just one percent, but the big benefit was that the loan turned into a grant if it was spent correctly.
The problem for many “nonessential” businesses—studios and stores included—was that with government mandates keeping their businesses closed, they had little need for staff right away—and that’s what most of the money had to be spent on. What’s more, they didn’t know when their situation would change. Reopening was full of uncertainty: It depended on the unpredictable course of COVID-19, on state or local reopening rules and timelines and on how quickly business would pick up again, even when businesses did reopen. At the same time, many had an urgent and immediate need for cash to cover fixed expenses like their rent, but only a small portion of the loan could be spent on that.
The PPPFA has fixed some of this, giving your business considerably more leeway on what you spend the money on, and the SBA has also moved to increase the accessibility of funds. Here’s a summary.
- $10 billion of the second round of PPP money was set aside last week to be lent exclusively through community development financial institutions (CDFIs). “CDFIs provide critically important capital and technical assistance to small businesses from rural, minority and other underserved communities, especially during this economically challenging time,” said SBA administrator Jovita Carranza in making the announcement. If you think you qualify, find your local CDFI through this CDFI locator.
- The original PPP rules required a business to spend 75 percent of the loan on payroll. Now that’s been changed to 60 percent (for new and existing loans). And if you spend less than that? It will simply mean your loan-forgiveness amount will be reduced proportionally, rather than being eliminated altogether. But nonpayroll expenses can never account for more than 40 percent of the forgiveness amount. Expenses that qualify remain the same—for now, they still don’t include such costs as PPE or inventory.
- The time period for spending the money, which used to be eight weeks from when you received the funds, has now been extended to 24 weeks. Say you applied for a PPP for your dance store in April, but you weren’t allowed to open until June. You were faced with paying staff when you didn’t really need them, just to make the eight-week cutoff. Now it’s possible for businesses to use the money when they need it, as they reopen and business picks up enough to warrant bringing more staff back. (If you already have a PPP loan, you can choose to spend it over 8 or 24 weeks.)
- Loan recipients now have until December 31 to hire back employees in order for their pay to count toward loan forgiveness.
- For new loans, the term has been extended to five years. It’s still two years for borrowers who got their funds before June 5, although “borrowers and lenders may mutually agree to extend the maturity of such loans to five years,” according to SBA guidelines.
Businesses ready for the forgiveness stage of PPP need to apply through their banks. The SBA has just posted an updated forgiveness application form that reflects the recent changes. And there’s a simplified form if you meet certain conditions.
For full PPP details and advice, consult your CPA, who will be tracking the most up-to-date information on Treasury and SBA guidance (details change often). The American Institute of CPAs also has a useful PPP FAQ.
The Bottom Line
If you applied for a PPP loan with no result, or hesitated to apply, consider whether it might be helpful now for your business. “If your bank is giving you the runaround or says they’ve closed applications, find another bank,” advised attorney and CPA Mark Kohler in a recent Entrepreneur webinar. “Smaller credit unions and smaller banks are still welcoming clients. They don’t even have to be in your town or your state.” Also, fintech lenders like Biz2Credit, Intuit Quick Books, PayPal and even POS vendors like Square are processing applications.
PPP isn’t the only government help available to your dance business, either. The SBA reopened applications this week for its Economic Injury Disaster Loan (EIDL) and Cash Advance, which can be spent on operating expenses. It has low interest rates and a 30-year term, and the cash advance doesn’t need to be repaid. Plus, this week the Main Street Lending program, a Federal Reserve–guaranteed loan, finally opened for banks to register and reduced its minimum loan amount to $250,000 with a five-year term, instead of four, to make it more accessible to small businesses. Principal payments can be deferred for two years. The Fed is also working on opening it up to nonprofits.