The Treasury Department on Friday granted small businesses participating in the pandemic relief program more flexibility for nonpayroll expenses, new ways of calculating payroll costs, and a new exemption in case workers don’t return.
The new guidelines announced Friday are meant to address some of the biggest complaints about the program, which is meant to rescue small businesses from the loss of customers due to the pandemic shutdowns.
The Small Business Administration’s relief program, called the Paycheck Protection Program, provides loans to struggling small businesses that, until Friday, were only set to be forgiven as long as 75% of the loan went to paying for worker salaries and the loan was spent over an eight-week period. It was initially funded with $350 billion as part of the massive $2.3 trillion CARES Act relief package.
The most significant update Friday to the program is “a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined,” the Treasury announcement said. This means that companies that try to hire back their former employees but are not able to will no longer be penalized in terms of their loan being forgiven.
The new guidance also says that small businesses that have received relief will now be able to calculate payroll costs using a new method that aligns better with businesses’ regular payroll cycles. Businesses will also get more flexibility on eligible payroll and nonpayroll expenses incurred during the eight-week period and can take advantage of new “borrower-friendly” exemptions to rehiring employees by the June 30 hiring deadline. Currently, if employees are not rehired by June 30, the amount their loan is forgiven could be reduced.
A number of leading business associations and organizations have, for weeks, been calling on Congress for big changes to the program, including open-ended funding, the ability to spend funds on more than just payroll, and more time to spend the money. Only some of these requests have been fulfilled by the Treasury’s new guidelines.
“The documents released today will help small businesses seek forgiveness at the conclusion of the eight week covered period, which begins with the disbursement of their loans,” the Treasury announcement on Friday said.
The Treasury announcement said that the SBA will also soon issue its own guidance to give small businesses and their lenders clarity on their loan applications.