The Paycheck Protection Program (PPP): Where Are We Now?
In late March, Congress passed the largest and most extensive economic relief effort in American history under the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act. Since the passage of the CARES Act, the US Treasury and the Small Business Administration (SBA) have mandated and changed a number of the rules and stipulations pertaining to the Paycheck Protection Program (PPP).
Because of the extent and novelty of this program in the US, it should come as no surprise that the SBA and US Treasury are having to “work out the kinks” in the original plan as they get deeper into the execution of this program. The timeline of events that have shaped the new rules is as follows:
June 4: Congress passed the Paycheck Protection Flexibility Act of 2020, which amends the CARES Act to provide greater flexibility to borrowers in qualifying for Loan Forgiveness.
July 4: Congress extended the deadline for applying for a PPP loan from June 30, 2020 to August 9, 2020.
July 14: The SBA announced that approximately $132.2. billion dollars was left for disbursement
But, many amendments have been made beyond the deadline for application including aspects of loan forgiveness, payroll tax deferral, and loan maturity dates. Here is a rundown of the major tenets as they are laid out now. Of course, these provisions could be subject to change in the future as more unanswered questions arise.
Reduction in Percentage Which Must Be Spent on Payroll Costs
Percentage of loan which must be spent on payroll was reduced from 75% to 60% to allow greater use of the loan for items such as rent, mortgage interest, and utilities.
Extends Time Period to Use PPP Loan Proceeds
In order to qualify for loan forgiveness, PPP loan proceeds previously had to be used over an 8 week or 56-day period. That time frame was extended to 24 weeks or 168 days. The borrower can still choose the 8-week option if he or she received the PPP loan prior to the enactment of the June 4th Flexibility Act.
Extends Safe Harbor for Rehiring Employees
The deadline to rehire workers was extended from June 30, 2020 to December 31, 2020. If the Full Time Equivalent (FTE) employee count was reduced after February 15, 2020 and before April 26, 2020 but the borrower eliminates those reductions before December 31, 2020, the borrower will be exempt from any reduction in the loan forgiveness amount that would have previously been required to reductions in FTE employees. Additionally, if certain employee salaries or compensation were reduced between February 15, 2020 and April 26, 2020 (the safe harbor period) but the borrower is able to eliminate those reductions before December 31, 2020, the borrower is exempt from any reduction in the loan forgiveness amount.
Addition of 2 New Safe Harbors relating to FTE Reductions
In the case that the employer can document (a) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020 and (b) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, the amount of loan forgiveness shall be determined without regard to a proportional reduction in the number of FTE employees.
The exemption also applies if the borrower is able to document an inability to return to the same level of business activity as before February 15, 2020.
Extended Maturity Date on Unforgiven PPP Loan
For loans granted or originating after the passage of the Flexibility Act, the maturity date is extended to 5 years from the date of funding (as opposed to the original 2 years). For loans originating prior to the Flexibility Act, the provision allows for borrowers and lenders to modify the terms of the PPP loan to reflect this later maturity date.
Deferral Period Extended
The borrower may defer interest and principal payments on the PPP loan from 6 months after funding to either (a) the date on which the amount of forgiveness is determined or (b) 10 months after the last day of the covered period (if the borrower fails to apply for forgiveness within 10 months).
Deferral of Payroll Taxes on Forgiven PPP Loans
Before the Flexibility Act, once a borrower had received a decision from their lender that their PPP loan had been forgiven, the borrower was no longer eligible to defer payroll taxes. Under the new provision, a borrower is still eligible to take advantage and defer payroll taxes through December 31, 2020.
An ongoing process.
Of course, there are still many unanswered questions hovering around the minutiae of the program and the terms and qualifications of forgiveness. We will continue to monitor and share with you as more information becomes available. Should you have any questions regarding your PPP application or eligibility for forgiveness, we would be happy to help you sort through the details. Feel free to reach out and schedule a call at any time should you find you need assistance.