After a bumpy rollout, the Paycheck protection program was a major lifeline for millions of businesses last year, spreading more than 5 million loans worth more than half a billion dollars.
But the program was hampered by unclear rules and unequal access that left some small businesses out of the early rounds, while large businesses such as the Los Angeles Lakers and Shake Shack (SHAK) obtained loans before public pressure forced them to return the money. give.
After the program expired last year, the program is now officially back: Treasury officials announced Friday that the program will reopen on January 11th. The program will initially only be open to applications for loans from financial institutions in the community. The first lenders can apply next Monday and Tuesday, followed by repeat lenders from January 13th.
Businesses that want access to money through other institutions will be able to apply for a loan at some point ‘shortly afterwards’.
The program will look very different from the first round. In an interview with Yahoo Finance this week – just before violence engulfed Capitol Hill – Senator Ben Cardin (D., Md.) Acknowledges that the program needs to be adjusted before this current “second draw” enables businesses to take out another loan to get.
“That was not all I wanted,” he said of the first PPP iteration, negotiated with his Republican counterpart Marco Rubio of Florida, but “at the end of the day, we have great help for small businesses. and small businesses saved. ”
Cardin is the Democratic member of the Senate Committee on Small Business and was one of the creators of the program. “We think we fixed it during this last round,” he said.
The newly passed stimulus bill includes $ 900 billion in new relief, including $ 284 billion for the EMP, which will be combined with about $ 140 billion left over from the first round of aid.
During a briefing on Friday morning, a senior Trump administration official said that the overarching goals of the 2021 program include measures to target the money only to “most needy” businesses, as well as a clear process to ensure that it smooth running for everyone involved. ‘
Here are five of the biggest changes to the program:
Stricter reporting restrictions
A major change going forward is that businesses should be able to show at least a 25% drop in revenue over an entire quarter last year. The first round of the program, which was still running the pandemic, had companies testifying that they would be in trouble because of COVID.
“The first round of the Paycheck protection program was kind of according to the code of honor,” said Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget.
Businesses got the money as quickly as possible because it was still in the middle of the initial closure. The idea was to settle matters when businesses returned to have the loans forgiven.
This time, harder numbers will be needed up front. Cardin said the idea was to “refine” the process; now ‘we demand that there is a significant loss of revenue due to COVID 19 to get help.’
The new program will also run – probably about a day – between the date the application is submitted and until a decision is approved. This is in part so that government officials can ensure that “borrowers are who they say they are.”
In the first phase of the EMP, government approval was often given immediately and sent to private lenders to fulfill it. In this round, most businesses can get forgivable loans equivalent to 10 weeks payroll, and restaurants will be eligible for loans of up to 15 weeks payroll.
In our opinion, these are the restaurants that will suffer the most during this winter period, because they really counted on outdoor meals, ”said Goldwein.
On Friday, the work report found that the food services category lost 372,000 jobs in December alone.
A limit on loan sizes and a focus on the smallest businesses
Another change in the program is a new limit on the loan size.
The forgiving loans will be limited to $ 2 million; previously, PPP limited loans to $ 10 million. And to be eligible, businesses can have no more than 300 employees, rather than the initial 500 employees. Businesses that are publicly traded or backed by private equity also have new rules to prevent them from accessing loans.
The revamped rules are an attempt to avoid revelations that came as late as last month about how large businesses could gain access to loans. The Washington Post recently reported that more than 1,000 Sonic Drive-In restaurants will receive more than $ 100 million in PPP loans by 2020 “despite Sonic being backed by a private equity giant and performing well during the pandemic. “
There is also a greater focus on subbank communities.
The guidelines for the new rules for the program note that Congress “has set aside funds for new and smaller lenders, for borrowers in low- and moderate-income communities, and for borrowers from the community and smaller.”
The bill sets aside $ 15 billion just for community financial institutions, $ 15 billion for other smaller institutions such as credit unions, and other funds for the smallest small businesses.
Two changes for existing PPP recipients
The latest stimulus bill also included changes in the tax law so that PPP loans, for tax purposes, will not count more than income. And the money a business spends with PPP funds is tax deductible.
“This is actually a very big tax break for businesses that have taken the PPP,” Goldwein noted.
Another new feature is the simplification of the loan forgiveness process for the smallest businesses.
Those with a loan of less than $ 150,000 will be able to waive their debt if the recipient simply fills out a one-page form and testifies that the funds were used according to the PPP guidelines. The current form of forgiveness for loan requires a detailed accounting of how the money was spent.
According to an analysis, simplifying paperwork would save these small businesses billions of dollars and ’70 million hours of owner labor ‘on less paperwork.
Once the program is up and running, small businesses will have access to the new funds until March 31st.
Ben Werschkul is a writer and producer of Yahoo Finance in Washington, DC.
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