Thanks to the recent passage of the Paycheck Protection Program Flexibility Act (PPPFA), forgiveness of Paycheck Protection Program (PPP) loans just got a little easier to navigate. The PPP was established in an effort to aid small business owners affected by COVID-19 and keep workers employed, as part of the $2 trillion CARES (Coronavirus Aid, Relief, and Economic Security) Act. While this program has served as a lifeline for many of our country’s small businesses, many have been concerned about whether they will be able to meet the qualifications for PPP forgiveness. The PPPFA changes some of the concerning requirements and should come as a relief to PPP recipients.
Here are the most significant changes to know about if you’ve received PPP funds:
- The covered period for PPP recipients to spend the loan on designated expenses (payroll, mortgage interest, rent, and utility costs) has been extended to 24 weeks, or until December 31st. Originally, the covered period was only 8 weeks. The extension applies to new applicants, as well as to borrowers who have already received their funds. Borrowers who received funds prior to June 5 can opt for the 8-week time period.
- In the original bill, borrowers were required to use 75% of the loan for payroll costs in order to receive maximum loan forgiveness. Many businesses have found this requirement challenging as a significant population of employees who were furloughed have opted not to return to work. The minimum percentage of loan proceeds that must be used for payroll has dropped to 60%. However, if a loan recipient’s payroll percentage falls below 60%, the loan is no longer eligible for any forgiveness (under the previous rules, the forgiveness amount decreased incrementally).
- Borrowers now have 24 weeks, or until December 31st, to restore their workforce and wages back to pre-pandemic levels in order to receive full forgiveness. The original bill’s deadline was June 30th.
- The PPPFA offers a couple of exceptions if a business is unable to fully restore its workforce. Borrowers will not be penalized if their employees turn down good-faith offers to be rehired at the same hours and wages as before the pandemic. In addition, if the borrower was unable to find qualified employees or was unable to restore business operations to pre-pandemic levels due to COVID-19 operating restrictions (including social distancing regulations) they will still be eligible for loan forgiveness. If your business is banking on this provision for loan forgiveness, we strongly encourage you to keep extensive documentation of all job offers and related matters.
- If the loan is not fully forgiven, borrowers have five years to repay the loan instead of two. The interest rate remains at 1%.
- Small businesses that receive a PPP loan can now also qualify for delayed payment of payroll taxes. Doing so was initially prohibited under the CARES Act to avoid double dipping, but the PPPFA makes a special exception to help struggling businesses make the most of the relief available.
- Borrowers can now apply for PPP forgiveness within 10 months (extended from 6 months) of the last day of the covered period before they must begin making principal and interest payments on the loan. Those payments will now, under the new bill, be deferred until the loan is forgiven by the lender.
With over $100 billion still available in the PPP program, we encourage small businesses to take advantage or to reapply if you were denied originally. If you keep the proper documentation and use your loan for authorized purposes, most or all of your loan should be forgiven. And even if that doesn’t work out, you’re still receiving a loan with unheard-of terms: five years at a 1% interest rate. We’re encouraging businesses to use this program to your advantage. Please contact us if you would like assistance. The program will terminate on June 30, 2020.