The Small Business Association (SBA) issued an update on the Paycheck Protection Program (PPP) loans to provide more guidance on forgiveness. However, $150 billion earmarked for the program remains unspent, according to Reuters, as many companies that would qualify decided not to apply due to a lack of clarity on how the loan must be spent in order to be forgiven.
SBA PPP loan update provides more clarity
The most recent update to the SBA's PPP loan program came late last week in the form of interim rules that will be used until the overhaul of the program is complete. Due to the lack of clarity when the program first began, many companies that weren't in dire need of the funds applied for and received PPP loans.
Pros And Cons Of Tail Risk Funds
Such companies could access funding elsewhere or weren't hurting as severely as the companies the program was intended for. The new problem is that there are still questions about how the funds must be spent so the loan will be forgiven. Some argue that the rules are so strict that many companies can't accept the funds.
The latest SBA PPP loan update adds to the original guidelines for the Loan Forgiveness Application and Instructions. The amount of the loan that will be forgiven covers certain eligible costs like payroll, interest on mortgages, rent and utilities.
Payroll costs include not only salaries, wages and commissions but also cash tips or the equivalent, vacation payments, parental, family, medical, or sick leave, insurance premiums, retirement funds, and payment of state and local payroll taxes. Retirement payments include qualified 401K, pension and profit-sharing plans, but it's unclear whether this covers stock-based compensation or other retirement plans that don't qualify for tax benefits.
The SBA PPP loan update also states that prepayments of interest on debt do not qualify for forgiveness. Other costs that are eligible for forgiveness must be paid during the period when the money must be spent, which is eight weeks.
Overhaul still pending
Lawmakers are still working on overhauling the Paycheck Protection Program. According to The Wall Street Journal, the changes are expected to provide more flexibility for companies in spending the money. The original terms of the loans required small businesses to spend 75% of their loans on salaries and other compensation in order for them to be forgiven.
The overhaul is also expected to extend the amount of time during which the money must be spent beyond the eight weeks the program initially set. Both changes are aimed at making it easier for companies that can't hire back staff while they're closed for the pandemic and need more money to pay for overhead expenses.