PPP Update: Key Details to Know About PPP Flexibility Act
With the United States moving into the third month of an economic shutdown, Congress responded to assist small business owners, whether further financial challenges. On June 5, 2020, President Trump signed into law the Paycheck Protection Flexibility Act, which adjusts some of the guidelines related to the forgiveness of loans to the PPP program that has already provided funding to over 4 million small businesses since the first week of April.
What is a PPP loan?
A PPP loan allows small businesses with funds to keep operations going by keeping current employees and bringing back workers who have been laid off or furloughed, even if their business isn’t fully re-opened. Employers with 500 employees or fewer can access the Small Business Administration (SBA) loans to use on payroll and operating costs during the business disruption created by the COVID-19 pandemic.
The funds can be used to pay any eligible expenses incurred during the beginning date the lender makes the first disbursement of the PPP loan to the borrower.
Eligible expenses include:
payroll costs
mortgage interest
rent
insurance premiums
utilities
While companies are eligible for loans up to $10 million, much of the data shows nearly two-thirds of all PPP loans have been for $50,000 or less. The loan is eligible for forgiveness if certain conditions are met. There is still money available and the deadline to get your application in is June 30, 2020.
What changes were made under the PPP Flexibility Act?
Many of the changes to the loan-forgiveness provisions of the PPP loan included extended deadlines and the covered period for loan forgiveness. Additional changes were made to the percentages applied to eligible costs that could be forgiven and exemptions on full-time equivalent (FTE) employees included in calculating forgiveness.
Here are some key takeaways on the new provisions:
The Covered Period given to spend the proceeds on approved costs has been extended from 8 weeks to 24 weeks. The Covered Period now includes 24 weeks from the loan disbursement date or 12/31/2020. However, you can still go with the 8 week period if you prefer (e.g. you want to forgive the loan sooner than later because you anticipate raising financing).
The allocation of payroll costs to other approved costs changed from 75% / 25% to 60% / 40%. This is great for companies who were not as payroll heavy and couldn’t hit 75% of the loan proceeds to payroll costs. Having said that, it’s now a cliff, so you MUST hit that 60% or you fall off the cliff [UPDATE: it appears they will remove the “cliff”, so more good news], meaning nothing is forgiven. With the extension to 24 weeks, hitting the 60% shouldn’t be a problem for most businesses.
The payment period has been increased from 2 years to 5 years for the unforgiven portion of your loan.
The period in which you can defer the loan principal can now be rolled back to the date when your application was submitted to your lender. You are no longer required to use the loan disbursement date.
You can rehire released employees until 12/31/2020, as opposed to the original deadline, 6/30/2020. This gives you more time to staff back up and avoid penalties.
Borrowers who have documented attempts to rehire between 2/15/2020 and 12/31/20 but are unable to do so will no longer be penalized with a reduction in loan forgiveness.
Receive both the PPP and Deferral Employer Payroll Taxes incurred between 3/27/2020 and 12/31/2020. Previously, the deferral was more limited in term.
Moving Forward
Basis 365 will continue to monitor the SBA and the U.S Treasury for additional guidance, including FAQs. It is important to note these updates to the PPP program will likely require the loan forgiveness application the SBA released in early June to be updated once again.
Small Business Owners have a lot to consider when applying for a PPP Loan and forgiveness - as always consult with your accounting team and legal advisor to determine the best course of action for your business.
