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Small businesses on the Paycheck Protection Program are in a dilemma over the loan repayment terms. Many businesses are exploring the possibilities of getting more money in order to allocate more towards payroll expenses.

The CARES Act requires businesses to use the loan within eight weeks of its deposit. In addition, three-quarters of the loan is to be used towards payroll expenses. These two requirements pose serious challenges for businesses as some have already laid-off workers, sized down operation, or closed down altogether.

Last month, the government implemented a cap on payroll for businesses and self-employed individuals. The forgivable amount cannot go beyond “the eight-week equivalent of $100,000 per year, which is $15,385, or the eight-week equivalent, about 15.38 percent, of his or her 2019 pay, whichever is lower.” Retirement contributions and health care expenses from Schedule C filers like self-employed individuals and general partners do not qualify for forgiveness as they are out of net self-employment income.

Government Eases PPP Loan Terms To Aid Small Business

In a bid to give businesses more flexibility, President Trump recently signed legislation to make changes to the Paycheck Protection Program. The Paycheck Protection Flexibility Act introduced two major changes affecting the amount of time businesses have to spend and what they can spend. In the new legislation, businesses have up to 24 weeks to use the money as opposed to eight weeks allowed before. It was a response to requests from businesses to increase the period as some had shut down businesses while others had sized down their operation as a result of the coronavirus pandemic.

Businesses requested the extension of the period to allow them rehire workers that had been laid off to meet the requirements for loan forgiveness. To give even more flexibility to businesses, law makers are proposing new measures that will see loan forgiveness determined without considering the number of staff if a business is unable to rehire former employees and has not returned to full business or unable to hire qualified employees.