CryptocurrencyInvestingBanksReal Estate

Key changes in just-passed PPP loan bill give small businesses 24 weeks to use funds

June 4, 2020, 7:13 PM UTC

Small businesses will likely now have more flexibility to use Paycheck Protection Program loans after the Senate unanimously approved a House bill to amend rules of the program late Wednesday. The bill now goes to President Trump to be signed into law.

The bipartisan bill, entitled the Paycheck Protection Program Flexibility Act and spearheaded by Democratic Rep. Dean Phillips and Republican Rep. Chip Roy, makes several changes to the program. Those include: extending the timeframe to use funds from eight weeks to 24 weeks, and requiring businesses to use 60% of the funds on payroll (before, it was 75%, which some small businesses said was a struggle as employees are unable to return to work amid shutdowns). Additionally, the bill now gives small business owners until December 31 to rehire employees to qualify for full forgiveness. Small businesses will also now have five years to repay loans instead of two, and the bill allows businesses to defer payroll taxes. The 1% interest rate on the loans remains the same.

However, members of Congress made one clarification in a letter that the extension of the covered period until December 31 is only for businesses who already have loans—the SBA may not issue any new loans after June 30.

A ‘major inflection point’

Some CPAs like William McDevitt, based in the New York area, see the bill’s passage as a “major inflection point” for his clients.

Many of McDevitt’s clients are in the medical practice, and have been mostly closed except for emergency procedures. Now, he says they’re “thrilled” at the extended 24-week timeframe, which should give them more flexibility to rehire employees once they slowly start to reopen more.

Indeed, the bill’s passage is seen by many as a big win for small businesses. Small businesses have voiced concerns about both the timeframe to rehire employees and the amount they have to spend on payroll, as many of them, including restaurants and bars, are only just beginning to reopen in certain areas of the country.

“Since keeping workers on payroll obviously requires small businesses to stay afloat in the first place, we’re expanding firms’ ability to use these funds to meet obligations like their rent, their mortgage or their utility bills,” Senate Majority Leader Mitch McConnell said on the Senate floor on Wednesday.

Other groups have praised the passage of the bill, including the U.S. Chamber of Commerce, which also urged the SBA and Treasury in a statement to “immediately provide guidance to small businesses on how they qualify for loan forgiveness under the new law.” The National Federation of Independent Businesses also said in a statement that “We are pleased the Senate approved this important bill for small businesses and we look forward to continuing to work with members in the chamber,” further asking the president to “sign the bill into law swiftly and deliver this much-needed flexibility for small business owners.”

Practically, the new bill would make full forgiveness for small businesses entirely within reach. “Assuming [your business is] functioning, it’s almost a foregone conclusion that you’ll have enough payroll to absorb the whole loan, and it basically should make the administration of processing loan forgiveness that much easier,” McDevitt tells Fortune.

And those like Glen Birnbaum, a CPA based in Illinois, said the bill’s passage was just in time for some of his clients. Thursday “was the 56th day for one client of ours who got the loan pretty early,” he told Fortune in a note.

Lingering concerns

However, there has been some debate over how the Small Business Administration and the Treasury will interpret the new 60% rule—and whether forgiveness will be all-or-nothing if the borrower doesn’t hit the 60% mark for payroll. Senators Marco Rubio and Susan Collins have both voiced concerns about how the legislation will be interpreted, and further legislative fixes may be on the table. The SBA did not immediately respond to Fortune‘s request for comment.

Still, some CPAs like Birnbaum aren’t very concerned about the 60% cutoff for payroll, as he explains that with the new 24-week timeframe, it would only be a “20% cliff for each eight weeks.” And McDevitt thinks that practically, “The math just works in your favor” with the 60% spread out over 24 weeks. While CPAs and attorneys alike have noted that the forgiveness application and guidance issued by the SBA and Treasury in recent weeks has been complicated, McDevitt believes that the new bill “doesn’t necessarily remove those questions, but it kind of neuters those questions.”

While funds in the first round of the program ran out in only 14 days, Round 2 has seen somewhat slowed demand. Currently, there is over $120 billion of the $660 billion program still to be allocated to borrowers. With the passage of the bill, some lenders expect there could be an increased demand for the program.

If the bill is signed into law by the president, the SBA will likely issue new guidance about forgiveness, although McDevitt thinks it might be in the next week or two.