- Borrowers must only use 60% of their loan funds for payroll costs under changes the federal government made to the Paycheck Protection Program (PPP) on Friday. Previously, the program required borrowers to use 75% of the funds on payroll, a requirement considered too restrictive by borrowers. For many businesses hit by mandatory stay-at-home orders, the money would have been better spent on rent and other operating costs.
- As a result of this change, companies with less than 500 employees can obtain 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 d other eligible costs, they’re eligible for loan forgiveness. If they don’t, they must repay the loan.
- In another change, the period over which borrowers must repay the loan if it is not canceled has been increased from two to five years.
Overview of the dive:
The law was approved by an overwhelming bipartisan majority, with the Senate passing it unanimously and almost every member of the House voting in favor. The law makes other changes aimed at facilitating the use of loans.
In a key change, the period in which borrowers must spend loan proceeds is extended from eight weeks to 24. The clock starts from when borrowers receive the funds.
The rationale for the initial short deadline was to ensure 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 when businesses start to reopen.
The law also gives borrowers more time to rehire employees laid off at the start of the pandemic. Originally, they had to rehire them by June 30; now they have until the end of the year.