PPP loans now only require 60% of payroll funds

Dive brief:

  • Borrowers should only use 60% of their loan funds for staff costs under the changes the federal government made the Paycheck Protection Program (PPP) which President Trump sign in law Friday. Previously, the program required borrowers to use 75% of the funds on payroll, a requirement that entrepreneurs and other businesses called too restrictive. For many businesses affected by mandatory stay-at-home orders, the money would have been better spent on rent and other operating costs, they argued.
  • Due to the change, businesses with less than 500 employees can get loans up to 2.5 times their monthly salary costs and, if they use at least 60% of the funds on payroll and the remaining funds on others. eligible costs, they are eligible for a loan discount. If they don’t, the borrowers must repay the loan.
  • As part of another change, the period during which borrowers must repay the loan if it is not canceled has been extended from two to five years.

Dive overview:

The law was passed on a majority bipartisan basis, with the Senate unanimously passing it and nearly all members of the House voted in favor. The law makes other changes to facilitate the use of loans.

In a key change, the period during which borrowers must spend the loan proceeds is extended from eight weeks to 24. The clock starts from when borrowers receive the funds.

The rationale for the initial short lead time was to make sure money was spent to keep employees on the payroll during mandatory stay-at-home orders, but critics said eight weeks was too short.

The 24 week period should be more useful as borrowers can use the funds to pay employees and operating costs as businesses begin to reopen.

The law also gives borrowers more time to rehire employees made redundant at the start of the pandemic. Originally, they were to rehire them before June 30; now they have until the end of the year.

About Louis Miller

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