Last week, the U.S. House of Representatives passed a bill to improve the flexibility of the Paycheck Protection Program. While the bill heads to the Senate, CNBC.com connected with MWE partner Paul Becht to discuss its key provisions, including loan-forgiveness rules and how they could impact small businesses.
Business owners who received a PPP [Paycheck Protection Program] loan have expressed concern that they will be unable to use their funds in a manner consistent with current loan-forgiveness rules.
Lawmakers meant the loans as bridge funding to help keep people employed and cover operational costs until the economy reopened and business activity resumed, said Paul Becht, CPA, a partner at accounting firm Margolin, Winer & Evens.
But the original eight-week time frame has proven to be too short for many businesses, since many are still idled.
“People thought two months was probably going to be enough to get it done,” Becht said. “It turned out, it’s not.”
This is especially true for businesses in states and regions like the New York metropolitan area that have moved more cautiously to reopen their economies.
Hospitality businesses like restaurants and recreational facilities such as gyms that may reopen in later phases — and likely won’t see a quick return to their prior customer base, amid social-distancing concerns — also stand to benefit most from a time extension to use money and rehire workers.
The current PPP terms also require 75% of funds to be used for payroll costs, in a bid to tamp down on already widespread layoffs. The remainder can be used for other expenses like rent, mortgage interest and utilities.
However, it may prove challenging for small businesses with low payroll costs relative to other expenses to meet the 75% threshold.
That’s especially true for the self-employed, those with few employees and businesses in metropolitan areas that have high rent payments, Becht said.
The PPP Flexibility Act would grant more leeway, so 40% of the loan could be directed toward non-payroll costs.
Of course, it’s an open question as to how enacting new PPP forgiveness measures would help early movers who may have gotten their loans at the beginning of April. Those who have been spending money according to the original forgiveness terms may have nearly depleted their funding already.
Some business owners decided not to spend their aid and, if legislation passes, may be rewarded for that risk, Becht said. Read More>>