Payroll Protection Program loan extension good news for many
STRASBURG, Va. — Recent changes to a federal forgivable loan program intended to help small businesses weather the COVID-19 pandemic have been welcomed by some owners but may have come too late for others.
Passed by the U.S. Senate and House of Representatives last week and signed into law by President Donald Trump on June 5, the Payroll Protection Program Flexibility Act triples the amount of time businesses have to spend the money in order to qualify for forgiveness and lowers the percentage that must be used for payroll expenses. Both are changes businesses and advocacy organizations have been seeking following the program’s launch in March.
“We always knew it would have to be flexible because it was put together so quickly, it was such an emergency,” said Steve Bulger, Mid-Atlantic Regional administrator for the U.S. Small Business Administration.
PPP guidelines originally required borrowers to spend the money they received within eight weeks to qualify for loan forgiveness. But that proved a challenge for businesses who got a loan before they were able to reopen.
“They felt that it would be very helpful for them if they could extend that out,” Bulger said.
The new legislation increases that period to 24 weeks.
“Basically, it went from two months to six months, so you’ve got a lot more time to use that money to make it eligible for forgiveness,” Bulger said.
That’s most beneficial to businesses who recently applied or have yet to apply, said Jeff Yourkovich, a certified public accountant and owner of Yourkovich & Associates in Wheeling, W.Va.
“Some of my clients, they’re in week seven of the eight-week program,” he said. “Now that some of the rules have changed, it may not affect them.”
The PPP Flexibility Act also lowered the amount of the loan that must be used on payroll to qualify for forgiveness from 75 percent to 60 percent. That will allow businesses to spend more on other costs to keep the doors open.
Marshall, Minn., restaurateur Tom Handeland would have liked to see that changed sooner.
“Most people … burned through that labor to make sure they qualify for the 25 percent that they could use for, you know, like, mortgage payments or interest payments,” said Handeland, owner of The Hitching Post. “They extended it, but nobody has any PPP money left.”
He is grateful for provisions that give borrowers 10 months instead of six before they have to start repaying portions of the loans that are not forgiven, as well as the extension of the payback period from two years to five.
“That surely helps, because the two-year payback wasn’t very realistic,” Handeland said.
Alice Muellerweiss and her husband, Kevin Watson, own the Anytime Fitness in Strasburg, Virginia. She said the PPP loan was a help before the changes, but lengthening the spending period will let them put all of their $11,760 toward salaries.
“It will get us through probably about 12, maybe 13 weeks,” she said. “Without the extension, we would have used the 25 percent on the lease.”
After the gym closed in March, they laid off two employees but retained a part-time manager and a trainer. Although they couldn’t let any members in or offer in-person classes for nearly two months, Muellerweiss said they needed both men to remain on staff.
They cleaned and did regular maintenance of equipment. They also helped her contact members to see if they were keeping up with their exercises. When gyms got the green light for outdoor classes in May, they were ready.
“Whatever steps the governor allowed, I had this team with me the entire time,” Muellerweiss said.
Strasburg Anytime Fitness was able to reopen June 5. Even with the PPP loan, Muellerweiss said she’s not sure how long they could have held on if they had to stay closed longer.
“If we’d been locked down to Aug. 1, I don’t know if we’d have been able to open our doors,” she said.
First Settlement Physical Therapy, which has 23 locations in Ohio and West Virginia, expected to pay back a portion of the loan because owner Simon Hargus said the business would need the capital it provided past the end of June. The changes in the recent legislation mean the “vast majority” of the loan for the company can be forgiven, he said.
“We were prepared to take it as a loan and pay it back because the timeline was so restrictive and it didn’t make sense,” Hargus said.
Although businesses are reopening, there is still a risk of spreading the virus.
“Business levels haven’t returned 100 percent yet, and they shouldn’t,” Hargus said.
Allowing more time takes pressure off of borrowers to pay workers when there isn’t work to do or bring them back too soon, he said.
“This helps bring some of them back in a timeline that fits both parties,” Hargus said. “A lot of our employees (who were laid off) benefited greatly from that increased unemployment.”
Other revisions to the PPP include “safe harbor” clauses if business owners aren’t able to hire back the same amount of full-time equivalent employees due to compliance with COVID-19 health guidelines or people being unwilling or unable to return to their previous jobs.
Bulger noted that in some cases, folks could receive more money from enhanced unemployment and might elect not to go back yet.
“We didn’t want to penalize the small business owner,” he said.
Under the new guidelines or the old ones, Yourkovich said the key is understanding the requirements. That isn’t always easy as the guidance keeps being updated and altered, even without new legislation.
“It’s been tough for banks, bars, businesses and CPAs alike,” he said.
Some borrowers may not be able to qualify for the loan forgiveness, Yourkovich said. With an interest rate of just 1 percent, that’s not a bad thing, as long as the business owner is planning for it.
“That’s relatively cheap money in this time,” he said.
One thing last week’s legislation did not change is the deadline to apply for a loan through a bank, which is still June 30.
“We still have about $125 billion in the program that is ready to go,” Bulger said Tuesday. “Make sure and try to get to a lender this week or next week.”
Darby Hinkley contributed to this report.
Evan Bevins can be reached at firstname.lastname@example.org.