President Donald Trump’s signing of the PPP Flexibility Act on Friday doesn’t immediately answer all the questions about loan forgiveness small business owners and their advocates have been asking for weeks.
The change in law is meant to allow more businesses to get a greater amount of their Paycheck Protection Program (PPP) loan forgiven. More than 114,000 Michigan businesses have been approved for PPP loans – which were created to help small businesses survive the coronavirus pandemic – worth a total of over $15.7 billion.
Yet many businesses were concerned about what seemed like arbitrary and restrictive loan forgiveness requirements from the start. The PPP Flexibility Act gives borrowers more time and flexibility to spend the money while remaining eligible for loan forgiveness, but it’s yet unclear which parts of the new law apply retroactively to businesses which have already received the loans before the law was enacted.
The PPP Flexibility Act eases the requirements for loan forgiveness. Businesses with PPP loans will have up to 24 weeks to spend the money, up from eight weeks previously. It also lowers the percentage of the funding businesses are required to spend on payroll, does away with a final deadline of June 30th, and affords “safe harbors” for businesses that might be unable to return to the same level of staffing as before the coronavirus pandemic.
“What this does is it absolutely provides greater flexibility for borrowers to qualify for loan forgiveness,” said Small Business Administration Great Lakes Regional Administrator Rob Scott.
It also extends the payment deferral period – businesses who don’t get partial or complete loan forgiveness won’t have to make payments until 10 months after the end 24 week loan forgiveness period. For loans approved after June 5, (when the PPP Flex Act was signed) the term of the loan has been lengthened to 5 years to give businesses more time to pay it back. Previously it was a two-year loan at 1% interest. Though Scott says the SBA will have to issue further guidance clarifying exactly which elements of the law apply to businesses that received PPP loans before June 5 – the vast majority of PPP borrowers in Michigan.
“(The U.S.) Treasury and the SBA are going to issue guidance on it,” Scott said.
Scott says June 30th remains the last day a PPP loan can be approved.
Changes made “too late” to help some of the earliest PPP borrowers
Jason King is the CEO of Outdoor Adventures, a chain of RV and camping resorts in Michigan. The business received a PPP loan toward the end of April, among the first round of funding for the program, and King says he began paying a number of his nearly 300 employees “to do nothing” while his business remained closed.
Outdoor Adventures has already spent most of its PPP funding based on the old loan forgiveness guidelines. King says their PPP money is due to run out on June 17th. Having 24 weeks rather than eight to spend PPP funds would have been more useful from the start.
“[The PPP loan] certainly hasn’t been the benefit that we had hoped it would be,” said King. "We didn’t really get to take advantage of it at all… it’s like taking money that would have otherwise have flowed through unemployment and flowing it through the business.”
Outdoor Adventures re-opened its resort sites on June 4th. A person who answered the phone in the company’s marketing department said the reservation system had been “very busy” with people making bookings. King couldn’t be immediately reached for comment on the passage of the PPP Flexibility Act.
“The Paycheck Protection Flexibility Act provides some much needed relief from the original rigid expenditure rules, although it comes too late to be of much use to those businesses in the first round of funding,” said Brian Calley, President of the Small Business Association of Michigan and former Republican Lieutenant Governor of Michigan.
Calley says re-opening is the best way to help businesses get back on their feet.
More money available, for now
There’s still $135 billion in PPP funding available to businesses nationwide, and Scott has said there was a slow-down in the rate of PPP applications as businesses and lenders waited to see if the previous, less lenient, loan forgiveness requirements would change. Now they have.
“The past several weeks we haven’t seen a lot of activity when it came to PPP loans,” Scott said. “With this change in law, I think you’re going to see a huge uptick in PPP loans.”
The changes come as more and more businesses across the state begin the process of re-opening for business. Scott says PPP borrowers like Outdoor Adventures that received funds before June 5th are able to request more PPP money.
Demographic information “on the back end”
The PPP was supposed to prioritize businesses from “underserved or rural areas” where it might be a challenge to get access to capital. According to NPR, lawmakers set aside $30 billion in PPP funding for smaller lenders, partly with the intent to help minority-owned small businesses. A report from the SBA’s Inspector General says there’s no evidence these businesses were prioritized.
Currently, Scott says the SBA doesn’t have information on how many minority-owned businesses received PPP loans. He says there was no requirement for lenders to ask business owners for demographic information at the time of the PPP loan application. He said there’s an optional demographic reporting portion of the PPP loan forgiveness application, which will have to serve as the chief mechanism to see if businesses in “underserved” areas got their share of the funds.
“We’re going to have a lot more detailed information,” Scott says, once more businesses apply for PPP loan forgiveness.
According to Scott, Monday was the first day lenders could file for PPP loan forgiveness on behalf of their small business clients.