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The PPP Extension Act: What it Means for Small Businesses

The program, which provides forgivable loans to small businesses affected by the COVID-19 pandemic, has been extended by two months due to nearly 200,000 applications still pending.

The Senate passed a bill on Thursday that would extend the deadline for Paycheck Protection Program (PPP) applications to May 31 instead of the current March 31 deadline. The PPP Extension Act, which the Senate passed by a landslide 92-7 vote, also gives the Small Business Administration (SBA) until June 30 to close pending PPP applications. The bill is now headed to President Joe Biden's desk.

What the PPP Loan Extension Act Means for Small Businesses

PPP loans are forgivable loans for small businesses and nonprofits struggling during the pandemic. They have an interest rate of one percent and will mature in five years. Borrowers must spend at least 60% of the loans on payroll, with the other 40% going to other eligible operating expenses. 

This recent extension will come as a relief for the nearly 200,000 small business owners anxiously awaiting the acceptance of their pending first-draw and second-draw PPP round two applications, as well as those who still need to apply. 

"If we do not act, there are 190,000 pending applications for loans that will be in limbo," Sen. Susan Collins, R-ME said during a speech on the Senate floor Thursday. "These small businesses need this assistance now in order to pay their employees and stay afloat."

The extension is one of several changes to the PPP that ensures the smallest businesses aren't excluded from receiving aid, which proved to be an issue during the program’s first round last April. In addition to implementing a two-week window for the smallest businesses to apply first, the Biden administration instituted a rule allowing sole proprietors, independent contractors and the self-employed to use gross income rather than net profit to calculate the amount of funding they should receive.

What is the Hold Up?

Patrick Kelley, associate administrator for the SBA’s Office of Capital Access, testified during a Senate Small Business Committee meeting Wednesday that applications were largely held up due to unresolved error codes related to validation checks for preventing fraudulent applications from being funded

The SBA is preparing to deploy a "machine learning tool" to help address the application backlog, Kelley told senators Thursday.

In addition to PPP delays, Kelley also noted restaurant owners may have to wait at least another month before getting access to the $28.5 billion Restaurant Revitalization Fund grants that were set aside for the industry by the American Rescue Plan.

When Will the PPP Loan Funds Run Out?

While the first PPP round ran out of money less than two weeks after it started accepting applications, this round has proven to have more longevity.

Since the relaunch of the program in January, only about $196 billion in PPP loans have been approved out of the $290 billion Congress originally provided, according to recent SBA data. Overall, the SBA has approved 8.2 million loans totaling $718 billion since last April. The PPP Extension Act does not provide any additional funding for the current round of the PPP.

With nearly 13% of small business owners recently telling the NFIB they will need to shut down within six months unless the economy improves, the PPP Extension Act will hopefully buy the nation a little more time and ensure the program reaches its full potential for economic relief.

Check out if you qualify for the PPP loans here. To prepare for the loan process, take a look at the application here.