During the initial phases of the COVID-19 pandemic, it became apparent that government intervention was needed to save a crashing American economy. To address the economic crises, the Trump administration signed the CARES Act into law, including the Paycheck Protection Program. However, with a program plagued with fraud and undercapitalized, a new program has been established. Below is a reminder of the original program and what has changed in the new.
The CARES Act: This $2 trillion program divides relief in the following ways:
The Paycheck Protection Program (PPP) is a loan program designed to incentivize small businesses to continue to pay their employees as part of the CARES Act.
For small businesses, the most notable features of the Cares Act are as follows:
Overall, the CARES act and the Paycheck Protection Program's incentive seems to be for the aid of small business employees. The legislation accomplishes this through forgivable loan payments to small businesses with continued employment as a condition.
The CARES Act and Paycheck Protection Program also spell out specific changes in expenses and deduction rules to allow small businesses to have an easier time keeping workers on their payroll and staying open during the pandemic (NPR). According to the Small Business Administration (SBA), PPP loans have a 1% interest rate. Loans issued before June 5 have a maturity of 2 years, loans issued after June 5 have a maturity of 5 years, no collateral or personal guarantees required.
CONGRESS APPROVES ANOTHER ROUND OF PPP
On December 27, the US Federal Government approved a new $900 billion stimulus bill. About a third of the stimulus ($284 billion) will be allocated to small businesses in the form of forgivable loans - part of a revamping of the Paycheck Protection Program (PPP). The government on Monday was set to reopen its signature small business pandemic aid program with $284 billion in new funds and revamped rules that aim to get cash to the most needy businesses while stamping out fraud and abuse.
Changes to the PPP
PPP loan applications will officially be reopening after being closed since August. The funding in this round is significantly smaller than the CARES Act - a difference of over 300 billion.
Key changes:
Other Guidelines:
Businesses that were initially unable to secure financing will be granted access to the application and select businesses that already received PPP financing through the CARES Act.
An SMB's maximum loan amount can be calculated by multiplying your past year's average monthly payroll by 2.5. The total maximum is set at $2 million (compared to $10 million before).
Borrowers can choose their covered period within the range of 8-24 weeks.
PPP financing can be used for payroll, operations, supplies, rental and mortgage costs, and damages. Expenses paid with PPP loans are tax-deductible.
Eligibility:
To be eligible for the program, you must be a small business with fewer than 300 employees that experienced revenue losses of at least 25% from the first to the third quarter of 2020 compared to the same quarter of 2019. You must also continue to have workers on your payroll.
In the Future: A Biden Presidency
President-Elect, Joe Biden has noted essential changes in small business relief. The Biden administration plans to implement the following small-business-related measures under the "Make It Work" checklist:
See above, on the Joe Biden campaign website at https://joebiden.com/the-biden-make-it-work-checklist/.
Overall, it seems that the Biden administration intends to expand government relief, explicitly focusing on small businesses and other areas the previous package seemed to leave out. To date, the PPP has distributed $525 billion through more than 5 million loans.
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