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Paycheck Protection Program Open for Business – Again

July 5, 2020Alerts

Congress has breathed a third life into the Paycheck Protection Program – which appeared all but left for dead a scant week ago –  and extended the availability of its potentially forgivable loans until August 8, 2020.

In its first life, PPP was funded with $349 billion as part of the CARES Act. Applications for the “free money” flooded the newly engorged Small Business Administration and the funds were exhausted in a feeding frenzy in April.

In its second life, Congress appropriated an additional $320 billion in late April. The euphoria for the program died down, however, leaving more than $100 billion on the table when this phase expired on June 30.

Then, in an unexpected display of cooperation, the Senate and the House of Representatives extended the availability of PPP loans until August 8 for new borrowers only.

The “free money” has some strings attached as more details about the program ooze out from the SBA and the U.S. Treasury Department via ever-changing FAQs, interim final rules, application forms and loan forgiveness forms.

Small businesses can earn full loan forgiveness if the funds are used for payroll costs (now at least 60%), interest on mortgages, rent, and utilities over a 24-week period or until December 31, 2020, whichever is earlier. During the covered period, the loan proceeds must be used for these four purposes. In addition, loan forgiveness will not decrease if the business is unable to return to its previous level of business activity due to compliance with requirements or guidance from the Department of Health and Human Services, the Centers for Disease Control or the Occupational Safety and Health Administration between March 1 and December 31 that involve COVID-19-related standards for worker safety or customer safety. The devil is in the details.

New PPP loans have an interest rate of 1% and a maturity of five years. Loan payments are deferred for at least six months. No collateral or personal guarantees are required. Neither the government nor lenders charge small businesses any fees.

The Treasury Department has vowed that all loans of more than $2 million will be audited and the identity of all borrowers with loans over $150,000 will be publicly available.

Congress returns later in July and may make additional changes such as permitting first-time borrowers to take out more loans.