Last week, the U.S. Senate passed a new version of the Paycheck Protection Program (PPP) legislation in an attempt to ease financial pressure on small businesses.
The original PPP loan (passed on March 27) is a Coronavirus Relief Program that is designed to give small businesses financial incentives to keep their employees on the payroll. The Small Business Association (SBA) will forgive loans provided that “all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.” In order to qualify for total loan forgiveness, businesses must use 75% of the loan for payroll.
The new bill called the Paycheck Protection Flexibility Act will extend the allotted time to spend the funds from 8 to 24 weeks. Along with that, it also lowers the portion of funds that employers must spend on payroll down to 60% in order to qualify for forgiveness.
The reason behind the change is that many businesses–especially restaurants–found it nearly impossible to spend 75% on salaries and still make money while sales were down due to COVID-19. However, the loan’s effects have been astoundingly positive, keeping many small business owners safe from otherwise declaring bankruptcy. These more lenient qualifications will take even more weight off of business owners’ shoulders.
Buy American-Made Equipment and Products Clause
Another important addition to the loan’s guidelines is that the borrower must only buy American-made equipment and products whenever possible. On the new borrower application form, applicants must sign to confirm that. “to the extent feasible, [they] will purchase only American-made equipment and products.”
This additional requirement means that, although business owners may have to spend a little more money to purchase American-made goods, they will ultimately be putting more money into the economy. This will make it so that the effects of the PPP loans are felt throughout the whole economy–not just small businesses. The multiplier effect could be what saves our economy.
Businesses will likely struggle to operate until the Coronavirus Pandemic is under control. The PPP and Paycheck Protection Flexibility Act are keeping businesses afloat while the nation slowly reopens. While it is helpful right now, only time will tell if it will offset possible long-term effects that the pandemic may have on small businesses.
To apply for Paycheck Protection Program Loan Forgiveness, click here.