The pandemic affected all areas of our lives. And the economy suffered the most significant damage. Many people tried to survive in the changing environment with the help of loans. No wonder they accumulated significant debt. The banks' requirements have also changed.
If you are wondering: “Why can't I get a loan” you need to analyze your financial state and make necessary improvements. You can solve the problems step by step and reach wealth. But what if your business is at stake?
The government understands the meaning of the business and the struggles during the hard times. That's why the special support program was introduced. In this article, we'll talk about the last round of this support program.
Historical Background
The program was initiated in April 2020. It was a loan program for small businesses affected by the economic crisis. It could help pay salaries and everyday expenses and keep the business alive. The initiative received a lot of criticism as well as support. The opponents claimed it's an easy way to get a low-cost investment while cutting the wages and firing employees.
The supporters of the program said that sometimes these funds were the only way to keep businesses afloat. Now we can see that these loans saved thousands of small companies. Unfortunately, unfair treatment and abuse of the conditions occurred too. The second round started in August 2020 and was extremely popular. The government provided $310 billion for business funding. After the expiration, the third round was announced.
The Changes in the Third Round
Biden's administration introduced some amendments to this law. All in all, there are 5 significant changes, but one of them was introduced only for two weeks. From February 24, 2021, the program was available for small businesses having fewer than 20 employees. This initiative ended on March 9, 2021. Other changes were:
- Revision of the formula. It was modified to provide better conditions for self-employed individuals and sole proprietors.
- Extension of the coverage. Now the right to a beneficial loan was given to the business owners with felonies for non-fraud crimes. This option was available for people who weren't incarcerated at the time of application.
- The right to apply for a loan was given to non-citizens.
All in all, the changes were beneficial for business owners and provided new opportunities. The coverage of this program became much wider.
The Conditions of the Third Round
Aside from the newly introduced changes mentioned above, the loans given in the program have the following terms and conditions:
- loans were given without collateral;
- the government provided the full guarantee of the loans;
- personal guarantees weren't necessary;
- the interest rates were 1%.
The following categories have a right to participate in the program:
- small businesses with 500 employees and less;
- food and hospitality-related organizations with fewer than 500 employees;
- self-employed people;
- non-profit organizations;
- news and public broadcasting organizations;
- housing cooperatives.
Only the businesses starting their operation before February 15, 2020, had a right to participate in the program.
Additional Requirements
For business owners who have already used the opportunity and received a loan, additional requirements were introduced. The right for the second loan had:
- the businesses with fewer than 300 employees;
- the organizations with the proof of at least a 25% decrease in gross receipts in comparison with the same quarter of 2019;
- businesses that have spent the first borrowing on eligible expenses.
These requirements were meant to ensure that only the companies in real need would receive the funding. The conditions were stricter than for the first-time borrowing but still covered multiple small firms.
The Use of Funds
The loans were indented to support the business and help with necessary expenses. That's why the program determined the allowed ways of spending. Obviously, the business owner could pay the rent, salaries, and utilities with borrowed money. But the third round extended the list of necessary expenses and included:
- Operative expenses. The law allowed paying for software, delivery services, and other expenses related to the firm functioning.
- Worker protection. The money could be spent on measures to meet the requirements of the government regarding the safety of employees.
- Payments to suppliers. These expenses include all the payments for supplies necessary for the constant operation of the company.
- Coverage of property damage. The conditions allowed paying for repairing the damage not covered by insurance. The change was introduced after the public disturbances in 2020.
PPP Forgiveness
The paycheck protection program introduced low-cost forgivable loans, so many companies wanted to apply for it. In order to be qualified for forgiveness, the firm should spend more than 60% of the entire sum on the payroll. It includes all the payments, taxes, and compensations to the employees.
Proof of this spending is necessary, so the business owner should present the bookkeeping records. As soon as the borrowed money was spent or the covered period ended, the borrower could apply for forgiveness. Usually, the application could be submitted online in a special form. The lender had 60 days to make a decision.
The forgiveness covered expenses on:
- payroll;
- mortgage;
- rent;
- utilities;
- operation-related costs.
All the expenses should be proved by documents and receipts.
Conclusion
Despite the common criticism of this initiative, the program gave many small firms and companies a chance. It supported business and allowed it to survive. Actually, we can see it as a support program for employees as well. In some cases, only the borrowed money is allowed to pay the wages and compensations.
The third round extended the coverage and made the funding available for multiple business owners and self-employed people. The terms and conditions became softer and easier to all qualify. The forgiveness program provided a tangible opportunity to cancel the debt. All in all, we can call this program a savior for the business.
The long-term effects are not clear yet. But the data we have proof that these measures saved the economy from the severe crisis and prevented the bankruptcy of thousands of firms. Since the small business is a base of the economy, the program gives hope to live through the hard period and see improvements in the nearest future.
