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PPP Loans Extended – But Demand Has Fallen

Congress extended the Paycheck Protection Loan program to Aug. 8, but businesses seem less inclined to use it: The second round of funding still had $130B leftover.

WASHINGTON – While Congress quickly sent aid money to people and businesses in the early days of the pandemic, a potential fourth round of funding seemed to hit a roadblock when lawmakers failed to reach agreement on what, or who, should receive the money.

As a result, the Paycheck Protection Program (PPP) – a small business loan that, among other things, rewarded companies that kept employees working by offering some loan forgiveness – was set to expire on July 31.

However, lawmakers in the House and Senate surprised observers by apparently deciding that an extension of the current PPP program was preferable to no agreement at all. As a result, PPP loans will remain available until Aug. 8, 2020.

The first round of PPP funding was $349 billion, and it ran out in less than two weeks. As a result, Congress approved another $310 billion on April 27. However, when the program shut down on July 31, that pot of money still had $130 billion in it.

There’s no single reason for the drop in demand from small businesses, but the program was sometimes confusing and it changed over time.

“It’s like they’re building the airplane while it’s in the air,” Albert Campo, CPA and managing partner at AJC Accounting Services in Manalapan, New Jersey, told cnbc.com. Some of those details – and a fear that money would not be forgiven if they didn’t follow the rules – may have discouraged some small companies from applying.

The latest version of a PPP loan gives small business owners a longer amount of time to use the money, and it lowered the required threshold for loan forgiveness in regards to retaining employees:

In addition, financial institutions oversee the loans, and it was sometimes difficult to find a willing lender. Campo says a few banks stopped offering the loans recently “because they’ve either hit their internal cap or there isn’t enough time to get things processed.”

Under the current rules:

  • Borrowers have 24 weeks, rather than eight weeks, to disperse their loan funds after receiving them in order to qualify for forgiveness.
  • 60% of the loan amount must be used to maintain payroll costs in order to qualify for forgiveness with 40% going to eligible expenses, such as utility payments, rent or mortgage interest, or other payroll costs. In the original version of PPP, 75% had to go to payroll costs.
  • The borrower must have the same number of full time-equivalent employees during the 24-week period of the loan as before the pandemic.
  • The Small Business Administration and the Treasury Department released forgiveness application forms last month, but they must now issue new forms and guidance. There’s no specific timeline yet for the updates.

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