Small Business Owners: New Improvements to the Paycheck Protection Program 

As this health and economic crisis continues, many small businesses are still struggling. The CARES Act created the Paycheck Protection Program (PPP) to provide forgivable loans to help small businesses pay workers, rent, mortgage interest, and utilities. Since the funds became available in early April, over 11,000 Vermont businesses have received a total of $1.2 billion. However, the program has fallen short in many ways. The initial federal guidance about loan forgiveness was unclear, leaving many Vermont business owners confused and wondering if they should apply. Many businesses that did receive funds were concerned their loans would not be forgiven, leaving them with debt they might not be able to pay back. 

In April, I joined Senator Leahy and Representative Welch in urging Treasury Secretary Mnuchin and Small Business Administrator Carranza to provide clear and official guidance to make much-needed improvements to the program (read the letter here). While the Treasury Department did release guidance and a Loan Forgiveness Application following our request in May, it remained clear the PPP terms still did not work for many Vermont businesses, particularly for those in the service and hospitality industry. Therefore, I am pleased that Congress passed, and the President signed into law, the Paycheck Protection Program Flexibility Act (PPPFA) on June 5th. The law makes a number of important changes to the PPP program, including eliminating the requirement to use 75% of funds on payroll expenses and extending the period in which businesses have to spend the loan and rehire workers. On Friday, the Treasury Department released a new Loan Forgiveness Application and updated guidance, providing further clarification on the revisions to the loan forgiveness requirements.

PPP loans are still available. but applications must be approved by June 30, 2020. If you are interested, contact your lender immediately. 

What Is In the New PPP Flexibility Law?

Key changes to the PPP include:

• PPP borrowers now need to only spend 60% of their loan on payroll to receive full forgiveness, rather than 75%. If a borrower spends less than 60% on payroll, they are still eligible for partial forgiveness. However, the law does not change the list of expenses eligible for forgiveness. These are listed below in the FAQ section. 
• The time period to use funds is extended to 24 weeks from 8 weeks.
• The deadline to rehire workers is pushed back to December 31, 2020 (instead of June 30, 2020). The loan amount and salaries are still calculated using the original method. 
• Additional exceptions have been added to the rehire requirements. If an employer can’t hire all employees back, the business can still receive forgiveness if it:  
  • demonstrates an inability to return to the same level of business activity as existed prior to February 15, 2020;
  • is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020; 
  • demonstrates an inability to hire similarly qualified employees on or before December 31, 2020; or, 
  • demonstrates that an attempt to rehire an employee was made, but the offer was rejected, a provision from the original PPP.
• The repayment term is extended to 5 years for new loans approved on or after June 5, 2020. In the event loans or portions of them are not forgiven, a business will now have five years at 1% interest to repay the loan. Further, the first payment will be deferred for six months after the SBA makes a determination on forgiveness.
  • If you received a loan before June 5, contact your lender to see if you are able to extend your repayment term. 

How to Apply for PPP Loan Forgiveness:

• If you’ve received a PPP loan, complete this application and submit it to your lender. 
  • If you’d like to complete the application electronically, contact your lender.
• The Small Business Administration coordinates with the Vermont Small Business Development Center, which can assist with applications. Call 802-728-9101 or 800-464-7232, or request assistance here: https://www.vtsbdc.org/register/
• For more information, consider joining the SBA Vermont District Office’s free webinars from 9 to 10 a.m. Tuesdays and Thursdays. They discuss the Paycheck Protection Program, the Economic Injury Disaster Loan and Advance, and any pertinent updates. To join by phone call 202-765-1264 and when prompted enter the code 470177937#, or visit https://meet.lync.com/sba123/sbmazza/6F6N4YK6

Frequently Asked Questions for Current PPP Borrowers:

Do I need to do anything to extend my 8 week period to 24 weeks to use the loan funds?

No, the period is automatically extended to 24 weeks by your lender. However, you must submit your forgiveness application within 10 months of the date of receiving the loan or it won’t be forgiven.

If my business does not meet the 60% payroll threshold, will I have to pay back the full loan?

No. As with earlier PPP rules, the new bill allows for partial loan forgiveness if 60% of workers are not retained or rehired. According to SBA, partial loan forgiveness will be proportional, based on the amount the employer actually spent on payroll costs.

What costs are eligible for forgiveness?

The following expenses incurred or paid by the borrower during the 24 weeks following loan origination are eligible for forgiveness: 

Payroll Expenses: 

• Compensation in the form of: gross salary, gross wages, gross commissions, and gross tips; vacation, parental, family, medical, or sick leave (other than leave for which the employer was reimbursed under the Families First Coronavirus Response Act), and allowance for separation or dismissal 
• Employer contribution for employee group health care coverage
• Employer contribution for employee retirement plans
• Payment of state and local taxes assessed on compensation of employees. 
• Note: For an independent contractor or sole proprietor, payroll costs only include wages, commissions, income, or net earnings from self-employment, or similar compensation

Non-Payroll Expenses:

• Mortgage interest payments for the business on real or personal property (debt incurred before February 15, 2020)
• Rent or lease payments for the business on real or personal property (lease in force before February 15, 2020)
• Utility payments for the business, including electricity, gas, water, transportation, telephone, or internet access (service began before February 15, 2020). 
• Note: For an independent contractor or sole proprietor, you must have claimed or be entitled to claim a deduction for these expenses on your 2019 Form 1040 Schedule C in order to claim them as expenses eligible for PPP loan forgiveness in 2020

Can I recalculate my loan amount?

No. Businesses are not able to recalculate loans if they have already been approved. 

For more information reference the loan forgiveness application and additional guidance on the loan forgiveness requirements released by the Treasury Department on June 12th. 

How to Apply for a PPP Loan:

• To apply for the Paycheck Protection Program with an eligible lender, use this form
  • Find a list of participating lenders by state here
  • You must apply by June 30, 2020
• For assistance with your application, contact the Vermont Small Business Development Center at 802-728-9101 or 800-464-7232, or fill out this form: https://www.vtsbdc.org/register/
• Find more information on the PPP program here

Frequently Asked Questions for Interested PPP Applicants:

Who is eligible to apply?

Small businesses, sole proprietors, independent contractors, gig workers, self-employed people, agriculture businesses, 501(c)3 nonprofits, and veterans organizations. You must have been in business as of Feb.15th in order to qualify. 

Employers must have 500 or fewer employees to apply, with some exceptions. Find out more here: https://www.sba.gov/federal-contracting/contracting-guide/size-standards

Are there any employers under 500 employees that are not eligible?

Yes. There are some ineligible entities, including:

• A business in bankruptcy proceedings
• A business or non-profit where gambling is over 30% of gross income
• 501(c)6 non-profits (chamber of commerce, etc.) 
• A self-employed business owner with a non-financial felony within the last year; or a self-employed business owner with a felony involving fraud, bribery, embezzlement, or a false statement in a loan or federal financial assistance application within the last five years

How much can I apply for?

Up to $10 million. The amount you will receive is based on a formula that takes into account your average total monthly payroll costs. It’s calculated using two months of your payroll costs multiplied by 2.5 (i.e. about 10 weeks of payroll costs). Independent contractor or sole proprietor loan applicants can use wage, commissions, income, or net earnings from self-employment or similar compensation to calculate loan amounts. 

Visit SBA’s guide on how to calculate PPP loan amounts here.

What is the interest rate of the loan?

The interest rate is 1%

When will I need to make my first loan payment?

The first payment is deferred for six months.

We Must Do More to Keep Workers on Payrolls

Beyond providing additional funding and fixing barriers for small businesses to receive assistance, I believe Congress must go further to keep workers on their employers’ payrolls. That is why I joined with my colleagues – Senators Mark R. Warner (D-Va.), Doug Jones (D-Ala.) and Richard Blumenthal (D-Conn.) – to introduce the Paycheck Security Act, a program to cover the wages and benefits of employees of affected businesses and nonprofits until the economic and public health crisis is resolved. Read more about the legislation here. Employees and business owners alike want workers to be able to return to the positions they held before this crisis began. This will help our economy improve more quickly after this crisis while keeping communities intact. 

We don’t yet know how this pandemic will ultimately affect our nation’s small businesses, but the outlook is grim. A recent study found that more than 100,000 small businesses have already closed permanently. Another recent survey showed that 52 percent of small businesses expect to go out of business within the next six months. We cannot continue to allow tens of millions of Americans to lose their jobs, income, and health insurance during this horrific pandemic. Since the COVID-19 pandemic began, over 40 million workers have filed for unemployment. An estimated 27 million people have already lost their employer-provided health insurance coverage, and millions more could lose coverage before this crisis is over. 

Allowing millions of small and independent businesses to fail will have a devastating impact on the economy and will make the road to recovery longer and harder. In order to avoid another Great Depression, Congress must act boldly and aggressively to ensure that every American worker receives their paycheck and health insurance until this crisis is over.  

Know that I will do everything I can in Congress to fight for the financial assistance that working families and small businesses need. Do not hesitate to contact my office at 802-862-0697 or 1-800-339-9834, or on our website.