As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
The Paycheck Protection Program (PPP) continues to support small businesses that have struggled throughout this pandemic. Initially, the Paycheck Protection Program was supposed to expire on March 31st, but it has now been extended for an additional two months until the end of May due to the newly signed PPP Extension Act of 2021 which was signed into law on March 30, 2021 by President Joe Biden. There are a couple of things for borrowers to keep in mind as the program continues.
Bipartisan Support for the Paycheck Protection Program
The Paycheck Protection Program has received a lot of bipartisan support by lawmakers in both chambers since its induction through the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, in 2020.
In Congress, both chambers voted with overwhelming support to continue to support this program. In the House of Representatives, lawmakers voted 415-3 in favor of extending the Paycheck Protection Program.
There are two main points that borrowers and small business owners can expect from the passage of this law. The purpose of the PPP Extension Act is to extend the deadline for small businesses to apply for either first or second loans through May 31st. In addition, the Small Business Administration will continue to process loan applications for an additional 30 days following its expiration date in order to alleviate the backlog and will not receive any new applications during that period. Even if a borrower successfully submits an application at the last moment, the Small Business will continue to review and process PPP loan applications. According to the Small Business Administration, they have approved 9,555,366 loans totaling $755,039,956,417.
What has Remained the Same?
The purpose of this law is to extend the program, so the vast majority of the original program rules and stipulations remain intact. The main goal with this legislation was simply to extend the program and continue to provide support for small business owners who have been hard hit by the pandemic and who may need either additional assistance or more time to apply.
That said, there are some changes that were introduced, most notably those related to individuals who file IRS Schedule C. This includes people who are self-employed, sole proprietors, and independent contractors. These changes will allow borrowers to calculate their PPP loan amount using their gross income as opposed to net profit. The purpose of this change was due to how home proprietors, independent contractors, and self-employed individuals “were structurally excluded from the PPP or were approved for as little as $1 because of how PPP loans were calculated.” Calculating loans off gross income will allow borrowers to apply for the maximum loan amount.
The list of eligibility and ineligibility has remained the same. Public companies, hedge funds, private equity firms, companies in bankruptcy at the time of the application or before the PPP loan is disbursed, and permanently closed companies are ineligible for PPP loans. In addition, the list of small businesses eligible for PPP loans has expanded to include housing cooperatives, newspaper publishing companies, radio and television broadcasting companies and nonprofit public broadcasting companies, and tax-exempt 501(c)(3) hospitals owned by a state or local government.
The loans continue to be designed for use on payroll and nonpayroll expenses, which has been highlighted in the Final Interim Rule. Maintaining the 60/40 ratio for payroll to nonpayroll expenses will be very helpful when applying for loan forgiveness following receiving and using the loan. Eligible expenses include:
- Mortgage interest payments
- Business rent payments
- Business utility payments
- Covered operations expenditures
- Interest payments on any other debt incurred before February 15, 2020. It is important to note that this is not eligible for PPP loan forgiveness.
- Owner compensation
It is important for borrowers to review in advance how they will use their loans for their small businesses as this will make it much easier to maintain the proper expense balance. As noted, this expense balance is important in ensuring that your small business is eligible for full loan forgiveness. However, overall, there have been very few changes to the existing program since. Considering how many changes have already been made to the program, this is probably a good thing as it will keep small businesses from having to figure out how any changes will impact them.
The overwhelming bipartisan support for the Paycheck Protection Program in Congress has remained the same since its creation through the CARES Act. The PPP Flexibility Act of 2021 extends the Paycheck Protection Program for an additional two months. This additional time should give thousands of small business owners and borrowers across the country the extra time they need to apply for either their first or second draw loans, assuming they are eligible.
While the changes to the program overall were relatively small in nature, if you are a sole-proprietor or independent contractor, some of these changes may help you and your business, so be sure to stay up to date with them and dive into how they can help your business specifically. And remember, even if you are not eligible for a PPP loan, there are still tons of other funding options out there for small businesses right now. So, if you aren’t eligible, don’t get discouraged. Be sure to take a look at the options being offered by your state and local governments, as well as any opportunities that non-profit charity organizations might be offering.
If you need assistance filing for a PPP loan or would like to learn about how it might impact your taxes or your business specifically, we recommend reaching out to a certified public accountant (CPA) that specializes in helping small businesses. CPAs have been going the extra mile to help small businesses during this pandemic, and they will be able to provide you with information that is tailored to your individual situation.
As always, Biz2Credit is invested in providing small businesses across the nation with the latest news surrounding small business funding and recovery options. We continue to remain vigilant in our effort to publish the latest and most relevant news each day for our readers. Please be sure to check back here at our Biz2Credit blog for the most recent updates on the Paycheck Protection Program as well as the many other programs being offered for small businesses during these challenging times.