A small business owner in Chinatown, San Francisco
The Senate on Thursday passed the 2021 PPP Extension Act with overwhelming support, extending the paycheck protection program deadline from March 31 to May 31.
The PPP extension was passed about a week after the House approved the bill, which will next go to President Joe Biden for signature. The measure not only extends the application deadline by two months, but also gives the Small Business Administration an additional 30 days to process loans.
The extension was supported by lenders and small business groups alike.
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“This is definitely a win for the smallest small business,” said Alex Cohen, CEO of Liberty SBF lender. He said he has seen a sharp surge in application volume, particularly from sole proprietorships and independent contractors who may not have applied in the first round of PPPs or who could not have received funding.
Here’s What Small Businesses Need To Know.
1. The program period now ends on May 31st, not March 31st
Small businesses have an additional two months to apply.
The extension helps lenders and businesses that encountered errors in the application process. In addition, in the current round of PPP, the SBA has increased security to combat fraud. That meant the application times were much longer for some.
“I’ve found up to 10 days in the past week that panic is definitely coming back,” said Chris Hurn, managing director of Fountainhead Commercial Capital, an unbanked lender. Now that the bill has been passed, everyone can breathe a sigh of relief, he said.
The SBA has announced that it has around $ 79 billion left, which was resumed at $ 284 billion in January.
2. There may be more time to apply for second draw loans
The extra two months could also open the door for small businesses that got their first PPP loan earlier this year to apply for a second.
Some small businesses that recently received a first drawing did not have enough time to apply for a second, as there is typically eight weeks between loans for the money to be spent on payroll.
This mainly affected sole proprietorships who did not know they had qualified for support from the program or were unable to get funding in the preliminary round.
“You will certainly be a great beneficiary of this extra time in the application process,” said Patrick Ryan, President and CEO of First Bank.
Of course, there are additional qualifications for a second draw loan beyond the eight week period. According to the SBA, small businesses must not have more than 300 employees and be able to reduce gross earnings by at least 25% between the comparable quarters of 2019 and 2020.
3. Some lenders still have different rules for PPP
Many non-bank lenders and smaller fintech companies kept their application portals open and intended to do so by the program’s expiration date, while many larger banks had stopped accepting new applicants to get it all done on time.
Now these banks are reopening their windows to help some borrowers, but some banks have different rules.
This is definitely a win for the smallest of small businesses
CEO, Liberty SBF
For example, JP Morgan will resume applying for PPP loans, but will not update the formula for calculating the loan for sole proprietorships or so-called Schedule C filers. That means sole proprietorships will need to use net income instead of gross income to calculate loan amounts, which will likely translate into less cash.
Wells Fargo and Bank of America offer the new credit calculation formula for sole proprietorships. In addition, both banks have confirmed that they will re-apply for PPP due to the extension.
4. More SBA guidelines likely
Of course, questions about the program remain and the extra time could open the door for further guidance from the SBA.
On the one hand, sole proprietorships who applied for credit before the updated calculation was announced are pressing for the rules to be applied retrospectively. The difference in loan amounts would have meant thousands of dollars more forgivable funding for some.
“It shouldn’t be at the expense of those who worked hard and got their applications early,” said Keith Hall, president and CEO of the National Association for the Self-Employed.
Lenders have also questioned the eight week period between first and second drawing of loans for sole proprietorships who don’t have traditional pay stubs. Because of this, some argue that they don’t have to wait eight weeks to apply for a second loan.
“”[The extension] will give the SBA enough time to do the right thing on a number of these issues, “said Hurn.
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