The bipartisan $900 billion Covid-19 federal relief package, passed in December, includes multiple measures aimed at helping small-business owners. The extension and refinement of the Paycheck Protection Program (PPP) are seen as the biggest boosts for the small-business community. Roughly $285 billion in additional PPP money will be made available, as part of $325 billion in small-business relief.

The PPP funds are expected to be disbursed through low-interest loans that could be forgiven if a business can demonstrate it spent 60% of the loan on payroll. The other expenses that may be funded from the remaining 40% of the loan money and still be forgiven are rent, mortgage payments, utilities, and interest on loans.

Per federal Small Business Administration guidance, the law will also allow deferments on payments of principal, interest, and fees associated with PPP loans to the date the SBA remits the loan to the bank.

During the spring business owners secured more than $669 billion of PPP money once state and local governments announced Covid-19 restrictions. But the program was marred by problems, as the initial round of $349 billion ran out in a few days, leaving many business owners out in the cold. Corporations and other large businesses took large parcels of PPP money, which had been designed to serve struggling mom-and-pop shops. There were also allegations of fraud.

The new PPP round includes guardrails to prevent such abuses. The money is limited to businesses with 300 or fewer employees, and publicly traded companies are ineligible. There is a $2 million limit, and expenses paid for with previous PPP funds are now tax-deductible. To be eligible, applicants must demonstrate a 25% revenue decline in any one quarter in 2020 compared with 2019. A small change in the law could also make it easier to access a PPP loan at a local bank.

Congress boosted the loan origination fee to banks for PPP loans of less than $350,000 to 5%. For PPP loans of more than $350,000, the origination fee to banks is 3%. The previous version of the legislation had lowered those amounts to 3% and 1%, respectively.

Source: Crain’s New York Business

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