5 year payback period on PPP loans

5 year payback period on PPP loans

How does the new SBA PPP loan modifications affect businesses?

Many business owners were relieved to learn of the PPP loan modification updated on June 5th, 2020.  However, with these new modifications, many folks are a bit confused as to how the payback of the SBA loans will work.  We’ve outlined a few key points to help avoid confusion.  With the first initial PPP loan rules being owed back within 2 years many business owners weren’t feeling much relief.  Beyond the 5 year payback period update to the PPP loan, there are a few more key points to know about the modification and what it can mean for your business.

Key takeaways from the loan modification

First, this new modification only applies to those who received the PPP loan post on June 5th.  For those businesses that were already approved and received their fund prior to the 2 years, the PPP loan payback period is still in effect. Approval is considered to have occurred on the day the SBA assigned a loan number to the borrower. 

Note that no interest has to be paid (at the 1% rate) until that 5 (or 2) year period.


Second, the 8 -week covered period is now extended to 24 weeks.  Borrowers who have been concerned with the limited time frame to utilize the loan will now have up to 24 weeks or until December 31, 2020, to use PPP funds granted to them for payroll costs and non-payroll costs eligible for forgiveness. It is important to note that borrowers that already received a PPP loan prior to this update can keep their covered period at 8 weeks if that works for them.

Finally, the threshold has been reduced to 60%.  Previously the SBA requirement was at 75%.  Meaning that 75% of the PPP loan funds had to be spent on payroll costs.  The remaining 25% can be spent on mortgage obligations, rent, utilities, and other operational costs.  With the PPP modification for loan forgiveness at least 60% of the funds must be used for payroll purposes.  The leftover (40%) can be used on non-payroll costs.

To read the in-depth review of all the loan modifications heads over to the treasury website here.