On April 24 the Paycheck Protection Program (PPP) Increase Act of 2020 was signed into law. The Act is an interim stimulus plan designed to provide relief to small businesses impacted by COVID-19. This legislation raises the funding level for PPP loans from $350 billion to $670 billion and increases SBA Emergency Economic Injury Disaster (EIDL) loans from $10 billion to $20 billion.
Paycheck Protection Program Increase
The interim stimulus plan adds more than $310 billion to the SBA Paycheck Protection Program (PPP). The CARES Act originally allocated $349 billion to the PPP program, which was depleted in less than two weeks due to high demand.
The PPP program is available to small businesses that have been affected by COVID-19. This includes sole proprietors, self-employed individuals, independent contractors and nonprofits. Businesses can qualify for 100% loan forgiveness for amounts used for payroll costs, mortgage interest, and rent and utility payments during the eight weeks after receipt of the loan, as long as no more than 25% of the loan proceeds are used for nonpayroll costs.
Borrowers must maintain staff and payroll to qualify for full forgiveness. Loan forgiveness will be reduced if salaries and wages are reduced by more than 25% for any employee who made less than $100,000 annualized in 2019. The interest rate on the nonforgiven portion of a PPP loan is 1%, and the loans run two years. All payments are deferred for six months, but interest will continue to accrue. Borrowers can prepay without penalties or fees.
Small businesses are defined as those with fewer than 500 employees total. However, the CARES Act applies the 500-employee threshold for each physical location for businesses in the hotel and restaurant sector.
Additional PPP funding of approximately $60 billion will be set aside for businesses that don’t have established banking relationships. It designates $30 billion for banks and credit unions with $10 billion to $50 billion in assets and another $30 billion for institutions with less than $10 billion in assets.
The interim stimulus plan also adds $50 billion in loans and $10 billion in grants to the SBA’s Economic Injury Disaster Loan (EIDL) program. And it extends EIDL relief to agricultural businesses with no more than 500 employees.
Small businesses with fewer than 500 employees can obtain loan advances of up to $10,000, and the advance doesn’t have to be repaid. Businesses can borrow up to $2 million with an interest rate of 3.75%. Repayment periods can be up to 30 years, based on the borrower’s ability to repay. There is an automatic one-year deferment on repayment, but interest begins to accrue when the proceeds are disbursed.
Like last time, this money is expected to go quickly. Many experts expect these funds to be exhausted within a week or two. For many small businesses it’s imperative to get in the queue immediately to improve the odds of getting funding.
Another stimulus package is already being discussed. The next package may include support for essential workers and state and local governments, food aid, election security, infrastructure spending, a payroll tax cut and bigger tax breaks for meals and entertainment.
We’re here to help. Contact RJI CPAs for assistance with PPP and EIDL applications and how to get maximum PPP loan forgiveness.