Let the changes begin! As we have mentioned in previous articles, there would be guidance on the CARES Act related to the forgiveness of Paycheck Protection Program (PPP) loans. Buckle up, as the changes are now here. The Paycheck Protection Flexibility Act was introduced by the House on May 26 and was approved by the Senate on June 3. The President signed the bill into law on June 5, 2020. Thankfully, these changes favor PPP borrowers.
The Paycheck Protection Flexibility Act makes it easier for recipients of the PPP loans to qualify for forgiveness. Absent this legislation, June 30, 2020, would have been the deadline for borrowers to use PPP funds.
Below, please find a summary of some of the legislation’s points.
- PPP borrowers can choose to extend the eight-week covered period to 24 weeks or Dec. 31, 2020, whichever is earlier, thus allowing businesses more time to spend the loan proceeds.
- This should significantly make it easier for more borrowers to reach full, or almost full, forgiveness.
- Borrowers have the option to keep the original 8-week period.
- Under the current language, the payroll requirement drops to 60%.
- The CARES Act that established the PPP initially required 75% of the loan to be used for payroll costs to qualify for full forgiveness
- Reducing the requirement to 60% of the loan should give borrowers more opportunities to cover non-payroll costs like mortgage interest, rent, or utilities.
- Increases the current limitation on non-payroll expenses (rent, utilities, mortgage interest) from 25% to 40%.
- Under Section 3, “To receive loan forgiveness under this section, an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs, and may use up to 40 percent of such amount for any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), any payment on any covered rent obligation, or any covered utility payment.”
- Borrowers can use the 24 weeks (until Dec. 31, 2020) to restore their workforce to the pre-pandemic levels required for full forgiveness.
- This legislation also includes two new exceptions based on employee availability to achieve full loan forgiveness.
- The new bill allows borrowers to adjust the number of full-time equivalent employees because they are unable to find qualified employees or were unable to restore normal business operation to Feb. 15, 2020 levels due to COVID-19 related operating restrictions.
- Previous guidance allowed borrowers to exclude from calculations employees who turned down a good faith offer to be rehired at the same hours and wages as before the pandemic.
- The bill allows businesses that received a PPP loan to also delay payment of the payroll taxes, which was prohibited under the CARES Act.
- Before, businesses could only delay payment of payroll taxes until the date the lender issued forgiveness of the loan.
- The maturity date of the loan has been extended from two to five years.
- The interest rate remains at 1%.
- PPP loans have a maturity of five years if the loan was made after June 5, 2020, the enactment date of the Payroll Protection Program Flexibility Act.
- Borrowers with existing PPP Loans may amend the terms of their loans with their lenders reflecting a longer maturity date.
For more details on the new law, visit https://www.congress.gov/bill/116th-congress/house-bill/7010/text
We will continue to monitor and provide you with changes and clarifications on the Payment Protection Program and the CARES Act.
If you have questions on applying for PPP loan forgiveness, contact the Experts at Henssler Financial:
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- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
- Join the Conversation in Our Coronavirus Facebook Group
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