Changes to the federal forgivable loan program could start as soon as Friday and are expected to reinvigorate a $659 billion coronavirus relief program that stalled after small businesses worried whether the loans would really be forgiven.
The new Paycheck Protection Plan amendment, signed Friday by President Donald Trump, extends the loan period to 24 weeks from eight, and makes it easier for small companies to meet forgiveness requirements. They can now use up to 40%, up from 25%, on rent and other certain expenses beyond payroll.
“With no income, businesses can’t pay their rent,” said Ceyl Prinster, president and CEO of the Colorado Enterprise Fund, a nonprofit lender with a special eye for small businesses needing microloans. “We’re happy about these changes.”
The Paycheck Protection Program Flexibility Act, which passed the U.S. Senate Thursday night, resolves some of the most common concerns of small businesses. The key changes:
- Extends the period in which the funds must be used to 24 weeks, through Dec. 31
- Allows forgiveness even if some workers don’t return to work (must be documented)
- Offers flexibility for businesses unable to return to full operation due to coronavirus safety measures
- Lowers the amount that must be spent on payroll to 60%, from 75%. That allows more of the money to be used on rent, utilities or mortgage interest
- Take up to 10 months to apply for forgiveness instead of six
- Extends loan repayment to 5 years, from 2 years. Portions of the loan that are not forgiven must be paid back at a 1% interest rate
- The new terms apply to all PPP recipients, with the first recipients finishing up their eight weeks this week (but discuss updates with your lender)
The paycheck loan program was extremely popular when it launched on April 3 with $349 billion in loans available to small businesses, defined as companies with fewer than 500 people. The money ran out within two weeks, so Congress moved quickly to approve an additional $310 billion.
But then it was discovered that large and publicly-traded companies and national chains received millions of dollars. The Small Business Administration, which handled the program, created rules to discourage those larger businesses from taking the loans. Many returned the money.
However, as rules continued to change, the second round of the program seemed to lose steam and small businesses began wondering if they would qualify for forgiveness. About three weeks ago, there was $146 billion available. On Thursday, the fund had grown to $148 billion available.
The extension should encourage more Colorado businesses to take advantage of the loan. It also offers more clarity for banks, said Don A. Childears, CEO of the Colorado Bankers Association. But he hopes more changes are ahead, especially when it comes to loan forgiveness.
The SBA released an 11-page loan forgiveness application form last month that is needlessly complicated. Childears called it “difficult to understand and to complete.”
“While all of the changes are good, we continue to urge adoption of a de minimis exemption that streamlines documentation on smaller loans,” Childears said in an email.
“Numerous members of Congress in both the Senate and the House are asking the Department of the Treasury and the SBA to revise the application so that it is no longer than one page for any loan under $250,000,” he wrote. “This amount seems to be the consensus although $150,000 and $350,000 have been mentioned.”
The loan has been a godsend to many Colorado businesses, including The Colorado Sun. SBA data shows that 98,072 businesses in Colorado have so far received $10.2 billion in paycheck loans.
Danielle Smith, the sole proprietor of Lotus and Lily Photography in Aurora, went a month without income after customers canceled their wedding photos. She had been volunteering at the Colorado Black Chamber of Commerce, which then offered to pay her part-time as the communications director.
“I had all but two weddings for the year canceled and I had scheduled for this summer about 30,” said Smith, who had tried applying for a paycheck loan in April but did not hear from her bank. She finally received a loan two weeks ago from a different lender. “The loan has been a little bit of help, but it’s definitely been a huge financial loss from COVID.”
Smith said she’s helped numerous Chamber members work on paycheck loans and said many of them either didn’t understand something or had trouble finding a lender, too.
That’s a common issue for small businesses that have never borrowed money or didn’t have a relationship with a bank. Many of the banks participating in the program accepted loan applications only from their own customers.
That’s where an organization like the Colorado Enterprise Fund can be a resource. It became a certified paycheck loan lender during the first round but only did one loan before the fund ran out.
So far in the second round, the Enterprise Fund has made 412 loans for a total of about $12.6 million. The average loan was about $30,000 and about one-quarter of the recipients are from Denver. The Enterprise Fund is still taking applications online, Prinster said.
“With as much money as is left and with these changes, I’d hate for businesses to be left out when it could work for them now,” she said.
This story was updated at 10:35 a.m. on June 5, 2020, to note that the paycheck loan extension was signed by the president on Friday morning.