On June 3, The U.S. Senate passed the House version of Paycheck Protection Program (PPP) legislation, tripling the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness of the loans from 8 weeks to 24 weeks.
This flexibility is designed to make it easier for more borrowers to reach full, or almost full, loan forgiveness. Self-employed entrepreneurs and businesses that don’t expect to reopen soon would benefit most, but it also may appeal to businesses that are in higher rent metropolitan areas where devoting 75% to payroll costs was more challenging.
The Senate approval sends the House bill, called the Paycheck Protection Flexibility Act, (H.R. 7010) to President Trump, who on June 5 signed the bill to give recipients of government small business loans during the coronavirus more flexibility in how they spend the money.
Talk with your Lurie advisor to determine if your current PPP calculations have changed, or whether it may be in your interest to apply for the PPP loan now.
What Changed with the PPP Loan Rules?
Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. Providing this option to employers for loan forgiveness that can be better suited to their business situation, as many employers in hard-hit states struggled with either stay-at-home orders or extremely low demand for their business and staffing.
New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020.
In the current language of the law, the payroll expenditure requirement drops to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Prior SBA guidance that limited a borrower’s loan forgiveness if less than 75% of eligible funds are used for payroll costs, will have to be rescinded or modified to match the new 60% rule. (Note: there is ongoing discussion from Congressional leaders and Treasury that there may be a technical correction to this rule).
“Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.”
Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
Borrowers who receive a PPP loan after enactment of this new bill will have five years to repay the loan instead of two. Borrowers with existing PPP loans can work with their lender to mutually agree to change their previous 2-year term to match the new legislation.
The interest rate remains at 1%.
The bill allows all businesses that took a PPP loan to also delay payment of their payroll taxes beyond the date of loan forgiveness which was prohibited under the CARES Act.
Future Paycheck Protection Program Fixes May Still Be Coming
Rep. Chip Roy (Texas), who co-sponsored the bill in the House, said in a House speech that the bill intended the sliding scale to remain in effect at 60%. Senators Marco Rubio and Susan Collins indicated that technical tweaks could be made to the bill to restore the sliding scale. Refer back to our SBA resources hub for the latest updates.
For More Information and Assistance with Your PPP Loan Forgiveness
For guidance and specific support services to help you navigate the complex PPP loan forgiveness process, please contact us. We are here to help.
Visit our PPP Loan Forgiveness Calculation Assistance and Advisory Services page for more details.
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