PPP Loan Forgiveness Just Got Easier
June 5, 2020 by Joshua Smeltzer
Millions of businesses borrowed money under the CARES Act Payroll Protection Program (PPP), which provides loans to businesses to retain employees and maintain payroll. The PPP loan amount could also be completely forgiven under the proper circumstances. Despite almost daily guidance on eligibility and forgiveness provisions, questions remain. However, the Paycheck Protection Program Flexibility Act (PPP Flexibility Act), enacted today, provides much needed relief to many small businesses.
Here is a list of the changes PPP borrowers should know about:
- Extension of the “covered period”. The original period covered by PPP loans was 8 weeks after funding of the loan. Some borrowers have already had their 8-week period expire and others have an imminent deadline. The PPP Flexibility Act extends this “covered period” to 24 weeks. This provides borrowers more time to use loan proceeds in a manner that can maximize potential forgiveness. However, a borrower can forgo the additional time if they have already used their loan proceeds, do not need extra time, and would prefer to proceed with requesting forgiveness.
- Businesses can spend more on non-payroll expenses. The original legislation only allowed 25% of the PPP loan amount to be spend on approved non-payroll expenses. The PPP Flexibility Act increases that number to 40% for approved business overhead expenses beyond payroll costs. This will allow businesses with large overhead costs the ability to pay those expenses without sacrificing potential loan forgiveness.
- Additional time to restore workforce and wage levels. The previous deadline to rehire or hire employees and restore wages was June 30, 2020–now that deadline is December 31, 2020. This allows businesses more time to make decisions on employees and wages in a manner that can maximize rehiring, wages, and the ultimate forgiveness amounts for PPP loans.
- Additional exceptions to forgiveness reductions. SBA guidance already provided an exception to forgiveness reductions if employers made good-faith offers to rehire that were rejected. The PPP Flexibility Act includes two new exceptions to forgiveness reductions if an employer can show that they were unable to find qualified employees to hire or were prevented from increasing their employee levels due to certain operating restrictions imposed by COVID-19. The details of these exceptions will almost certainly be the subject of additional guidance. However, under the right facts, this can allow some businesses to use their individual circumstances to receive full forgiveness.
- Payroll tax deferral now allowed. The CARES Act allowed businesses to defer the employer portion of the 2020 Social Security payroll tax obligations with half payable on December 31, 2021 and the other half due on December 31, 2022. However, the CARES Act specifically denied the deferral to businesses receiving PPP loan forgiveness. The PPP Flexibility Act allows deferral regardless of whether amounts are forgiven.
- Time to repay loan extended. PPP loans were originally required to be paid in two years and the new legislation extends the repayment deadline to 5 years at the same 1% interest rate. If a borrower fails to apply for forgiveness, then the first payment is due 10 months after the last day of the covered period. This may signify a recognition that, for some businesses, the recovery will take longer than previously expected.
As with the original legislation, guidance is sure to follow as PPP loan borrowers continue to analyze their own specific facts and circumstances. If you have questions regarding your specific situation, please contact a Brown Fox attorney.