The Paycheck Protection Program (PPP) was created in 2020 by the CARES Act to help small businesses withstand the economic fallout from the COVID-19 pandemic. The recently passed PPP Extension Act of 2021 extends the deadline for PPP applications from March 31 to May 31. This move also grants the Small Business Administration an additional 30 days beyond May 31 to process loans. Here’s what small businesses need to know.
New Deadline Provides Breathing Room
According to the National Federation of Independent Business (NFIB), nearly one in every six small business owners reported the likelihood of needing to close their doors forever if current economic conditions did not improve within six months. The extension to May 31 will benefit these businesses, as well as lenders and businesses that have experienced errors and delays from technical difficulties in the application process. The SBA has also increased security in order to detect fraud, which has delayed processing in some cases. It’s important to note that May 31 is Memorial Day, so borrowers should have their applications in by May 28, before the start of the long weekend.
Opportunities for New First Draw PPP Loan Borrowers
The additional time may also benefit small businesses that received their first PPP loan this year. Because typically eight weeks must pass between the loans in order to spend money on payroll, this may give businesses enough time to use up those funds and apply to a Second Draw PPP Loan. Keep in mind that in order for a small business to qualify for a second draw loan, additional criterion must be met, according to the SBA:
- no more than 300 employees
- must be able to show at least a 24% reduction in gross receipts between comparable quarters in 2019 and 2020
The PPP Extension Act does not provide for further funding of the PPP. At the time of signing, however, the SBA said there was about $80 billion in funding that had yet to be disbursed to small businesses.