On June 4, 2020, both the House and Senate passed the Paycheck Protection Program Flexibility Act (H.R. 7010) which contains seven key provisions that changes the ways in which borrowers can spend Paycheck Protection Program (PPP) funds and over what applicable time period.
Paycheck Protection Program (PPP) Loans Update
First, as a reminder for any small business that has a desire and has not been able to gain approval for PPP funds yet, there is still opportunity for your business. After the second round of $310 billion in funding for the program in late April, there still remains approximately $120 billion available for qualifying small businesses.
If you need help because your bank is unable to process your loan application, here are other non-bank, approved lenders that can help facilitate the PPP loan program with you.
If you need help from us on this, please contact us – we can help generate much of the payroll and related information that is needed for the initial loan applications.
Seven (7) important changes for PPP loan forgiveness
Forgiveness Spend period is extended from 8 weeks to 24 weeks.
One of the biggest challenges to the original PPP bill in achieving loan forgiveness was spending the funds over a quick 8 week time period when many businesses have limited operations and activity or a lesser demand for work. This extension from 8 weeks to 24 weeks is a special election that a borrower can make if they do not believe they will achieve their planned 100% forgiveness during the original 8 week time period.
So, if you obtained your PPP funds on April 25, 2020 your original 8 week (56 day) Forgiveness Spend period ends on June 19, 2020. With this new special election, borrowers can elect to extend the time period to up to 24 weeks, or in this case October 9, 2020.
Even with this extension, if our planning and PPP spending achieves the goal of 100% loan forgiveness within the 8 week spend period, we are advising to stay the course and work through the forgiveness application on our original time table.
Payroll spend requirement of 75% is now 60%*.
The requirement to spend 75% of PPP funds toward wages, health insurance, retirement plan contribution and state unemployment payroll taxes is lowered to 60%. However, this 60% threshold is now an absolute deal breaker in looking to achieve any kind of loan forgiveness. Previously if you did not achieve 75% payroll spend, your forgiveness was limited just by the pro-rata reduction.
* If you do not achieve at least 60% payroll spend, none of your loan will be forgiven.
Safe harbor restoration of Employee count is extended to December 31, 2020.
The latest guidance from the Small Business Administration (“SBA”) created a safe harbor on the reduction in loan forgiveness based on your Employee count. The new safe harbor says that you can meet the Employee count criteria is you restore your employment levels that existed on February 15, 2020 before June 30, 2020 your loan forgiveness will not be reduced if you laid off employees between February 15 and now.
The new Act extends this rehire date to December 31, 2020.
Restoration before December 31, 2020 does not require actually working on New Years Eve. The requirement under this provision provides for increased flexibility to continue operating at a lower employee count and not be penalized for not restoring your employee count levels back to the numbers as of February 15, 2020. It would appear that you could elect to extend your forgiveness period to 24 weeks (which may end in the middle of October) and still wait to submit your loan forgiveness application until after December 31, 2020 based on your employee count numbers at the end of the year. I think there is more explanation necessary here, but this is a good place to start for this analysis right now.
Employee refusal to work still counts in your Employee count numbers.
The latest FAQ’s from the SBA allowed for borrowers to count legitimate offers of employment that are rejected by prospective or returning employees to count toward your forgiveness Employee count numbers.
This extension to 24 weeks allows for business to safely bring employees back as social distancing and worker safety restrictions are eased.
Loan repayment period extended from two (2) years to five (5) years.
Repayment on any non-forgivable portion of the PPP loan is extended from 2 years to 5 years and remains at a favorable 1% interest rate. The previous rules required the SBA to decide and return the loan forgiveness within 60 days of filing the loan forgiveness. The new provisions extend this to 150 days. This is not great news because it can confusion and uncertainty with trying to close out your books and records for the 2020 fiscal year as you wait on the SBA to determine your loan forgiveness portion of your PPP funds. Again, we can expect a little more guidance to come on this later.
Two year deferral of Employer portion of Social Security taxes.
This aspect of the CARES Act allowed for businesses to defer the employer portion of social security taxes for the 2020 tax year until 2021(50% due) and 2022 (remaining 50% due). However, any wages paid with PPP funds and after until the SBA determination of loan forgiveness were ineligible. This new Act allows businesses to start now in deferring the employer portion of Social Security taxes (even during your PPP spend period).
While this may make sense in extreme cases for cash flow purposes, our recommendation is not to defer these payroll taxes. This is a tempting deferral for cash flow purposes but could really be challenging in 2021 and 2022 to come up with the cash to cover these larger accumulated tax balances. We believe it is in your best interest to continue paying your employer Social Security taxes currently as part of your regular compensation costs.
We’re in this together
We understand these continuous updates can feel a bit defeating and confusing, but rest assured, we are keeping clued in and current with the latest developments so that you are put in the best position possible. If you have questions, do not hesitate to reach out to one of us.