A little more than two months after creating the Paycheck Protection Program (PPP), Congress and the President listened to the pleas of business owners and passed a law easing some of the requirements for PPP loan forgiveness. The Paycheck Protection Program Flexibility Act (PPPFA) not only grants more time for borrowers to use and payback funds but also allows borrowers to use more loan proceeds on non-payroll expenses.
Here are some of the main points of the PPPFA and what they mean for you as a borrower. As with other coronavirus-related legislation, this is an ever-evolving process. The Small Business Administration (SBA) and Treasury Department are expected to release guidelines and further interpretations of the PPPFA. Cross Accounting will keep you updated as further information is released. Your Cross Accounting tax professional can answer questions and assist in various aspects of the PPP loan application and forgiveness process, including appropriate documentation.
- The PPPFA extends the time period to use funds from 8 weeks to 24 weeks. Under the original legislation, borrowers had to use their loan proceeds in 8 weeks from the date of receiving their PPP funds. For a business that had been shut down or seen a drastic decline in operations since the inception of the pandemic (deemed by the government to be February 15, 2020), using the funds in 8 weeks was going to be challenging. If your PPP loan originated prior to 6/5/2020, you still have the option of having your covered period end 8 weeks after you received the funds.
- The flexibility act allows borrowers to spend a higher portion of their loan on non-payroll expenses. Under the original PPP rules, businesses had to spend 75% of loan proceeds on payroll costs in order for their loan to be forgivable. With the passage of the PPPFA, borrowers now only have to spend 60% of loan proceeds on payroll costs, thus allowing them to spend up to 40% on non-payroll costs such as mortgage interest, rent, and utilities.
- Borrowers now have until December 31, 2020 to use all funds. The original PPP documents required use by June 30.
- The new legislation grants leniency, under certain circumstances, in maintaining the same number of full-time-equivalent (FTE) employees. In the original PPP rules, a borrower had to retain the same number of FTEs in order for the loan to be forgivable. Under the PPPFA, the loan is still forgivable if a borrower can in good faith document that it could not:
- rehire individuals who were employees on February 15, 2020;
- hire similarly qualified individuals before December 30; or
- return to the same business operating levels as those of February 15 due to compliance with coronavirus-related sanitation, social distancing, or safety guidance or regulations issued by the Secretary of Health and Human Services, Centers for Disease Control and Prevention, or Occupational Health and Safety Administration.
- Borrowers now have until December 31, 2020, to rehire workers and/or restore wages in order to avoid forgiveness reductions. The original PPP rules specified June 30.
- Businesses may have five years instead of two to repay any unforgivable portions of the loan at a 1% interest rate.
In passing the PPPFA, Congress answered many complaints of small businesses that had received PPP loans but were finding the timing for use of funds and spending requirements onerous. New loans are still available for small businesses that have not yet applied.
How can Cross Accounting help?
Cross Accounting can help you in the PPP loan application and forgiveness process by calculating qualifying payroll and non-payroll expenses and FTEs, reviewing documentation, and assisting in the application. Contact us at 770-293-7500.