As reported, the Senate voted unanimously on Wednesday (June 3) to pass the Paycheck Protection Program Flexibility Act, which had passed the House with a single dissenting vote last week. The bill then headed to the White House for President Trump’s signoff.
In terms of the most significant changes, the newest legislation triples the timeframe in which small and medium-sized businesses (SMBs) can use the funds distributed from the Paycheck Protection Program (PPP) to 24 weeks, where previously it had been eight weeks.
In addition, the percentage of the loans mandated to cover payroll has been reduced to 60 percent; the previous percentage was 75 percent. No more than 40 percent can be used for other costs.
In other words, there is flexibility now, for business owners to bring capital to bear on other expenses. We contend, too, that giving firms the flexibility to put money toward expansionary efforts that anticipate a rebound could have a positive ripple effect on other areas of the economy, by paying rent or mortgages or utilities.
The extension also states that for loans not forgiven, firms have as long as five years (rather than the original two years) to repay the loan.
The move by Congress also clears the way for SMBs that might have been hesitant to apply for the loans to move forward and apply. As has been reported, roughly $130 billion still is left from the second round of PPP that had been approved by Congress, which totaled $320 billion. To date, according to the Small Business Administration (SBA), about $510.6 billion in loans had been approved, across 4.5 million loans.
And yet, the fact that so much funding remains available spotlights the reality that a significant number of SMBs had been, and still are, hesitant to apply for the loans.
Consider the fact that as reported last month, at least $20 billion in PPP loans were canceled, as SMBs were afraid they would not be able to spend the money according to the rules, and get the loans forgiven. Key among those concerns was that the funds had to be spent within the eight-week timeframe in order to quality for loan forgiveness. In one bit of anecdotal evidence, a hair salon owner in Boise, Idaho told KTVB that she could not open her business (due to mandated shuttering) and at the same time could not pay employees, who were on unemployment and making more than would have been covered by the PPP loan. In that case, forgiveness of the loan would be difficult.
As PYMNTS reported last month, an increasing number of SMBs sought PPP loans as of April’s end. While only 32.7 percent of the SMBs we surveyed had applied for SBA loans (including but not limited to PPP aid) as of April 6, that grew to 41 percent for those who had sought PPP money by April 20. That’s hardly a mad dash to sign on the dotted line.
And it may be the case that the mad dash has long passed, and was seen in April when the PPP debuted. The National Federation of Independent Business (NFIB) said that in survey of more than 600 businesses, 77 percent said they had applied for PPP loans and of that tally, 93 percent had received them. The survey also said that roughly a quarter of recipients had used about 75 percent of the proceeds.