In April I wrote about the Paycheck Protection Program (PPP) loan which has helped millions of small businesses navigate the choppy waters produced by COVID and the national shutdown. Over the last two months, the world has changed in more ways than one. We have experienced confusion and uncertainty across all business lines and every socioeconomic environment.
There have also been changes to the PPP as recent as last week as the President signed the “PPP Flexibility Act” into law.
Although I want to cover some of the significant changes to the PPP loan, it should be noted that as of today, the SBA has yet to update their Loan Details and Forgiveness area within SBA.gov. www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program#section-header-8
Some of the stated changes include:
Extension of PPP Forgiveness Period to 24 Weeks
The PPP Flexibility Act extends the forgiveness period to the earlier of 24 weeks after the loan disbursement date, or December 31, 2020. This change also allows Borrowers that re-open gradually over an extended period of time to have more of their PPP loan eligible for forgiveness.
Payroll Spend Allocation
Previously it was stated that 75% of loan proceeds must be used on payroll costs. This amount was reduced to 60% thanks to the Flexibility Act. The remaining 40% of PPP loan proceeds spent during the forgiveness period may be spent on any combination of non-payroll expenses (i.e., mortgage interest, rent, or utility payments).
Extension of PPP Covered Period and Outside Rehire/Salary Restoration Date to December 31, 2020
The PPP Flexibility Act also extends the end of the “covered period” for spending PPP loan proceeds and the deadline for restoring the number and salaries of applicable full-time equivalent employees (FTEs).
Covered Period Extension
The end of the covered period is extended from June 30, 2020 to December 31, 2020. This gives Borrowers until the end of the year to spend their PPP loan proceeds.
Outside Rehire/Salary Restoration Extension
The outside rehire/salary restoration date is also extended from June 30, 2020 to December 31, 2020. Under PPP loan forgiveness rules, a Borrower’s loan forgiveness is reduced if the Borrower reduces applicable FTEs and/or salary/wages during the forgiveness period relative to a pre-COVID-19 comparison period, subject to several “safe-harbors,” including one that allows Borrowers to disregard these forgiveness reductions if the reduction in FTE and/or salary/wages are eliminated by the outside rehire/salary restoration date.
Option to Retain the 8 Week Forgiveness Period
This is a nice addition as borrowers with pre-existing loans outstanding as of the effective date of the PPP Flexibility Act can opt-out of the extended PPP forgiveness period and, at their option, elect the 8-week forgiveness covered period measured from their PPP loan disbursement date.
Maturity for Loans with Remaining Balance
The PPP Flexibility Act sets the minimum maturity date for unforgiven portions of PPP loans issued after the enactment of the PPP Flexibility Act at 5 years. Unlike the other provisions of the PPP Flexibility Act which apply to all PPP loans, whether made before or after the enactment of the PPP Flexibility Act, this provision is only applicable to loans made on or after the enactment of the PPP Flexibility Act, but existing Borrowers can agree with their lenders to a longer maturity date, which is in conformance with the PPP Flexibility Act.
Additional Exemptions to FTE Based Forgiveness Reduction
A Borrower’s loan forgiveness will not be reduced due to a reduction in FTE headcount if the Borrower can document in good faith that it was (a) unable to rehire individuals who had been employees as of February 15, 2020, and (b) unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or if the Borrower is unable to resume normal business activity levels due to compliance with HHS, CDC, or OSHA requirements or guidelines in effect between March 1, 2020, and December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to the COVID pandemic.
Extended Deferral of Repayment
Businesses may also now extend the end of the deferral period for PPP loan interest, principal and fees from 6 months to the date on which the amount of forgiveness is remitted by the SBA to the lender. Notwithstanding this extended deferral period, Borrowers will be required to begin paying principal, interest, and fees on their PPP loans 10 months after the end of the forgiveness covered period if they fail to apply for forgiveness.
Delay of Payment of Employer Payroll Taxes
Also notable is the exclusion of a business that obtains PPP loan forgiveness from benefiting from Section 2302(a) of the CARES Act, which allows for the delayed payment of employer payroll taxes.
About the Author
Shaun Enders is a Co-Founder and Managing Partner of Transition Staffing Group located in San Diego. Shaun is extremely passionate about recruiting and developing others to bring out the best version of themselves.