In June, legislative measures were enacted creating significant changes for small businesses wishing to participate in the Paycheck Protection Program (PPP).The Paycheck Protection Program Flexibility Act (PPPFA), that passed on June 5th, aimed to broaden the usability of the PPP.
The PPP was initially introduced by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The initial $349 billion program was created to mitigate potential economic downfall caused by the COVID-19 pandemic. As it was first outlined, the PPP provided small businesses a loan that can be converted into a non-taxable grant to cover expenses from February 15 – June 30, 2020. The PPPFA created revisions to the PPP participation duration, deadline, forgivable expenses, and requests for full loan forgiveness.
The following is summary of some of the most important changes, as outlined by the AICPA:
- Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
- Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75%. On June 8, the SBA and Treasury clarified that the 60% threshold is not a cliff and that partial forgiveness is available under 60%. This means that borrowers are required to reduce the amount eligible for forgiveness if less than 60% of eligible funds are used for payroll costs, but forgiveness is not eliminated if the 60% threshold is not met.
- Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
- The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
- New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
In addition to simplifying the application process and easing repayment, these revisions have extended the deadline for small-business owners who have not yet applied for funding. Whether you would like to know your business’ eligibility or the implications of the PPPFA, a Bowman tax representative can help.