What The Paycheck Protection Flexibility Act 2020 Means
The Paycheck Protection flexibility act lets borrowers do more with the loans they acquire from the US government under the existing Paycheck Protection Act. Moreover, it allows them to reap those benefits while remaining eligible for loan forgiveness.
Suppose you’re incredibly comfortable with all these terms and want to read about the act from the primary source, head over to congress’s page on the Paycheck Protection Flexibility Act. If not, I have put together a beginner’s guide on what the Paycheck Protection Flexibility act is and what it means for you.
Paycheck Protection Flexibility Act FAQs
I’ll explain the act and its implications in the most layman terms possible.
What is the Paycheck Protection Program?
It’s essential to understand this program first, as the Paycheck Protection Flexibility Act is just an expansion of it.
The Paycheck Protection Program is a way for small businesses and other qualified entities to borrow money from the US government. The government will loan a company an amount equal to 250% of its monthly payroll for all employees. That amount is capped at $10 million, however. The loan has to be spent by the end of 2020, or the funds will become invalid.
What makes the Paycheck Protection Program rather unprecedented is the clear path towards loan forgiveness offered in terms of the loan. More on loan forgiveness below.
The Paycheck Protection Program was reinstated on April 24, 2020, in response to the devastating economic impacts of COVID on American small businesses. The deadline for loan applications was originally June 30, but it has been extended to August 8.
The recently revised Paycheck Protection Program borrower application can be found here.
What is Loan Forgiveness?
For loans obtained through the Paycheck Protection Program, the government will “forget about” part or sometimes even all of the money if the receiving company keeps everyone on their payroll for 24 weeks. If employees quit or have to leave because of reasons out of the company’s control, the company has to refill the position as quickly as possible at the same wage.
By incentivizing employers to keep their entire workforce, the government helps ensure that unemployment rates will not skyrocket.The Recently revised loan forgiveness application can be found here.
What are the main provisions of the Paycheck Protection Flexibility Act?
Since COVID’s negative economic impacts are proving to be a bit more drawn-out than expected, the US government has made the forgiveness parameters for Paycheck Protection Program loans even more forgiving.
For example, the original Paycheck Protection Program stipulated borrowers spend all the funds they receive within eight weeks of obtaining them if they wanted to remain eligible for forgiveness. Under the new act, they have 24 weeks to do the same thing.
Another example is the workforce retention requirements. If the borrowing company can prove that it absolutely had to let certain employees go due to a lack of qualifications (or if they are unable to fill an already-vacated position due to lack of qualified candidates), their loan can still be forgiven. Same story if they cannot find suitable job applicants due to COVID-related restrictions.
If a borrower cannot have all of their loan forgiven, they previously had two years to pay back the remaining balance. Under the Paycheck Protection Flexibility act, they have five years.
Last but not least, the new act changes the requirement for the amount of the loan spent on payroll from the previous 75% to 60%. This is one part of the act that has received some criticism because it means dishonest business owners have more freedom to spend the money in ways that don’t necessarily fuel the economy as directly.
What Does the Paycheck Protection Flexibility Act Mean for Me?
If you are an entrepreneur struggling to stay afloat because of COVID, the revised Paycheck Protection Program is a golden opportunity. As long as you can tough it out with your current team of employees, the act basically means free money!
And the Paycheck Protection Flexibility act itself means you will be able to do more with the loan. Your business will have more opportunity to maneuver and maybe even thrive in the harsh business landscape of 2020.
If you have already taken out a loan via the PPP, the Paycheck Protection Flexibility act still applies to you too.
If you are an employee, the Paycheck Protection Flexibility Act means a lot more job security. Without it, companies would be forced to let go of a lot more of their talent.
Watch Out for Scammers!
The Paycheck Protection Program and the accompanying Flexibility Act are meant to give desperate small businesses a lifeline. Some scammers are taking advantage of that desperation by offering a “PPP loan” in exchange for a “deposit.” The FTC filed a case against one of these organizations in April.
The point is, stay on your toes and only go through the official applications found on big government websites.
Just like Roosevelt’s New Deal Programs helped the American economy stay afloat during the Great Depression, the ongoing Paycheck Protection Program helped Americans get through the coronavirus recession. Let’s hope we see even more programs like it in the near future!
FOR A MORE IN-DEPTH ANALYSIS OF THESE POINTS AND MORE ABOUT THE PAYCHECK PROTECTION FLEXIBILITY ACT, CHECK OUT THE VIDEO ABOVE!