President Trump on Friday signed into law bipartisan legislation giving small business owners who tapped a federal aid program more flexibility in how they spend the loans, the latest effort by the federal government to blunt the economic pain of the coronavirus pandemic.
The Paycheck Protection Program, a centerpiece of the $2.2 trillion CARES Act, provided forgivable loans of up to $10 million to businesses with fewer than 500 workers.
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But the new law – the Paycheck Protection Program Flexibility Act – eases the restrictions on how the money must be spent in order to be forgiven. Loan recipients now only have to spend 60 percent of the aid on maintaining payroll — including salary, health insurance, leave and severance pay — rather than the previous 75 percent rule. The remaining 40 percent can go toward operating costs like rent and utilities.
Businesses now have 24 weeks to spend the money instead of two months. The bill also lets small businesses that accessed the fund defer payroll taxes.
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The second round of PPP funding began April 27 after the initial tranche of $349 billion evaporated in just 13 days. As of Saturday, more than 4.42 million loans worth close to $511 billion had been distributed through the program. Congress allocated about $610 billion to the PPP, leaving roughly $100 billion left over in the fund.
The legislation attempts to address the growing concern among small business owners that the PPP loans simply don’t meet their needs. In some cases, the extra $600-per-week in unemployment benefits established by the CARES Act has snarled efforts by businesses to bring workers back, with employees reluctant to forfeit a bigger paycheck and return to their job when the risk of contracting the virus remains high.
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Roughly two-thirds of workers on unemployment are earning more from the government aid than they did at their old job, according to a paper written by economists at the University of Chicago’s Becker Friedman Institute.
Small business owners have also cited confusion and uncertainty around the forgiveness process — and are worried about potentially being on the hook for the money.
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