PPPFA: Changes to PPP and how that will Impact Loan Forgiveness

Last Updated on June 15, 2020 by bigfish-admin

On June 5th, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA) to address concerns expressed by small businesses surrounding the Paycheck Protection Program (PPP) aimed at providing economic relief during COVID-19. The new law addresses the following changes to flaws in the original PPP created under the CARES Act. 

  1. Amount of loan used for payroll is now 60%

PPPFA reduced the amount of the loan needed to be spent on payroll from 75% to 60%, thus increasing the amount of funds available for other expenses from 25% to 40%. The PPPFA did not change the list of expenses that are eligible for forgiveness. 

  1. Extends spending period for loan funds to 24 weeks

PPPFA extended the time period to spend the loan funds to 24 weeks from the date funds were received, or by December 31, 2020, whichever occurs sooner. . Presumably, this will make receiving complete loan forgiveness more attainable since the loan amount was based on one-month of 2019 payroll, multiplied by 2.5, which equals approximately 10 weeks. PPPFA also does not require that businesses wait for 24 weeks before applying for forgiveness, but businesses can still do so after eight weeks if they prefer. 

  1. Defer Payroll Taxes

PPPFA also allows borrowers to take advantage of the CARES Act provision that allows for deferment of the employer’s portion of Social Security taxes. Previously, the PPP did not permit deferment of these taxes on the forgivable portion of the loan. 

  1. Deadline to rehire workers now December 31, 2020 

Many businesses took issue with the original PPP requirement that all workers had to be rehired by June 30, 2020, for their salaries to count towards loan forgiveness. Many businesses were concerned they might not be open or certainly not open at full capacity by this date. Under the new law, businesses now have until December 31st, 2020, to rehire workers so that their salaries to count towards loan forgiveness. This law did not change how salaries are calculated towards forgiveness. The payroll calculation used in the loan application still applies to the forgivable amount. Employee compensation eligible for forgiveness is still capped at $100,000, and unless further guidance is issued, employer-owners and contractors are still capped at $15,385. Presumably, having an extra six months of expenses eligible for forgiveness will make up for any gaps and help ensure 100% forgiveness of the loan. 

  1. Eases rehire requirements

The intent of PPP was to keep the same number of employees on the payroll as was used to calculate the loan.  As such, it required a business to rehire the same number of full-time employees or full-time equivalents by June 30, 2020. The only exception to this rule was if an employer could document in writing that an attempt to rehire an employee rejected the offer. PPPFA makes two significant changes to the rehire requirements. First, it extends the rehire deadline to December 31, 2020. Second, it includes additional exceptions for a reduced headcount. The law states a business can still receive forgiveness on payroll amounts if: 

  • Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
  • Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
  • Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.

Businesses should continue to document efforts to rehire employees through December 31, 2020 in writing as thoroughly as possible.

  1. Extends repayment term to 5 years

The PPPFA eases repayment terms in the event loans, or portions of them, are not forgiven. A business now will have 5 years at a 1% interest rate to repay the loan. Further, the first payment will be deferred for six months after the SBA makes a forgiveness determination. Under current regulations your lender has 60 days to make a forgiveness determination and the SBA an additional 90 days.  This means you could have up until May of 2021 to make the first payment on the loan.

The SBA, in consultation with Treasury and will be providing a modified loan forgiveness application. This is intended for informational and educational use only. We encourage you to consult with your CPA, attorney or lender to assist you in resolving PPP issues unique to your business.  For more information on the PPPFA, you can visit these resources: 

SBA 

Congress.gov

How PPPFA affects Entrepreneurs 

Insight into latest PPPFA changes

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