PPP Loans Part 2—What Small Businesses Need To Know
After months of delays and partisan bickering, Congress passed a second stimulus bill, which has now been signed by President Trump. A significant part of this second stimulus includes renewed funds for Paycheck Protection Program (PPP) loans. For small business owners, their families and their employees, help is finally on the way—just in time for the new year and, hopefully, in time to spare more businesses from closure.
Following criticism of the program last spring—some warranted, some unfair—I have high hopes for this new legislation.
Last spring, one of the most significant issues with the PPP rollout was a biased distribution that enabled many lenders to prioritize large corporations and businesses with well-connected interests—all at the expense of struggling small business owners. Fast, fair and hassle-free access to instantly usable funds is critical to fulfilling the government’s stated intention of the new bill and reviving the American economy.
What does this newest bill entail, and how will its provisions help the nation’s smallest businesses access relief funds? Here’s what small business owners need to know about the next round of PPP.
Check Out News from the Forbes
Treasury Secretary Mnuchin announced 3 big changes to the PPP small business loan program as $130 billion in aid sits unused
The TQA addresses accounting for nongovernmental entities only (which include business entities and not-for-profit entities (NFPs)). The TQA explains that an entity accounting for the PPP loan under Topic 470:
- Would initially record the cash inflow from the PPP loan as a financial liability and would accrue interest in accordance with the interest method under ASC Subtopic 835-30.
- Would not impute additional interest at a market rate.
- Would continue to record the proceeds from the loan as a liability until either (1) the loan is partly or wholly forgiven and the debtor has been legally released or (2) the debtor pays off the loan.
- Would reduce the liability by the amount forgiven and record a gain on extinguishment once the loan is partly or wholly forgiven and legal release is received.
The TQA also states that in situations in which the PPP’s eligibility and loan forgiveness criteria are expected to be met:
- A business entity can also analogize to the guidance in ASC Subtopic 958-605 or ASC Subtopic 450-30.
- An NFP should account for such PPP loans in accordance with ASC Subtopic 958-605 as a conditional contribution.
Check Out News from the Journal Of Accountancy
How The Latest PPP Updates Impact Entrepreneurs
The Payroll Protection Program (PPP) continues to evolve. The Paycheck Protection Program Flexibility Act (PPPFA) was passed nearly unanimously by both houses of Congress and signed into law on Friday, June 5. On Wednesday June 10, the Department of Treasury released Paycheck Protection Program – Revisions to First Interim Final Rule, a statement on how the Treasury Department is interpreting the new law.
This new legislation and statement support entrepreneurs by reducing restrictions on how PPP money can be spent and increasing the timeframe to spend the loan.
60/40 Rule
Historically, the 75/25 Rule required entrepreneurs to spend at least 75% of the PPP loan on payroll costs in order to receive loan forgiveness. The PPPFA also makes it easier for entrepreneurs to qualify for loan forgiveness by reducing the percentage of the PPP loan proceeds that must be spent on payroll costs from 75% to 60%.
Latest News From Forbes on the PPP Flexibility Act
The New Bill - the Paycheck Protection Program Flexibility Act
Check out the FOX Latest News
The Paycheck Protection Program, a centerpiece of the $2.2 trillion CARES Act, provided forgivable loans of up to $10 million to businesses with fewer than 500 workers.
President Trump on Friday signed into law bipartisan legislation giving small business owners who tapped a federal aid program more flexibility in how they spend the loans, the latest effort by the federal government to blunt the economic pain of the coronavirus pandemic.
But the new law – the Paycheck Protection Program Flexibility Act – eases the restrictions on how the money must be spent in order to be forgiven. Loan recipients now only have to spend 60 percent of the aid on maintaining payroll — including salary, health insurance, leave and severance pay — rather than the previous 75 percent rule. The remaining 40 percent can go toward operating costs like rent and utilities.
The second round of PPP funding began April 27 after the initial tranche of $349 billion evaporated in just 13 days. As of Saturday, more than 4.42 million loans worth close to $511 billion had been distributed through the program. Congress allocated about $610 billion to the PPP, leaving roughly $100 billion left over in the fund.
The legislation attempts to address the growing concern among small business owners that the PPP loans simply do not meet their needs. In some cases, the extra $600-per-week in unemployment benefits established by the CARES Act has snarled efforts by businesses to bring workers back, with employees reluctant to forfeit a bigger paycheck and return to their job when the risk of contracting the virus remains high.
Businesses now have 24 weeks to spend the money instead of two months. The bill also lets small businesses that accessed the fund defer payroll taxes.
Roughly two-thirds of workers on unemployment are earning more from the government aid than they did at their old job, according to a paper written by economists at the University of Chicago’s Becker Friedman Institute.
Small business owners have also cited confusion and uncertainty around the forgiveness process and are worried about potentially being on the hook for the money.
