June 11, 2020
By Joe Price
You may already be aware of this, but in case you have more interesting things going on in your life, let me announce that on June 5, President Trump signed a bill passed by the House on May 28 and by the Senate on June 3 – the sorely needed Paycheck Protection Program Flexibility Act (PPPFA).
This post will merely list the highlights of the new PPPFA, which include:
Covered Period Extended by 16 weeks
Your covered period, which is the period during which you must spend your borrowed funds, has been extended from eight weeks to the earlier of (a) 24 weeks or (b) December 31, 2020. For some businesses, that is a godsend because the eight-week limit had forced them to make expenditures that would not ordinarily be made within that brief span.
Loan Term Extended by at Least Three Years at Favorable Rates
Your Paycheck Protection Program (PPP) loan has been extended from a two-year maturity to a minimum five-year maturity. Since the interest rate on this loan is only 1%, any extension is welcome.
Deferral Period for Payment is Changed
Previously, lenders were required to defer the payment of principal and interest on the PPP loans for six months. Under the new rules, deferral is required until the lender receives the forgiveness payment from the Small Business Administration (SBA), which is likely to be longer than six months. If the borrower does not apply for forgiveness, the deferral period will be 10 months from the date of funding of the loan.
Payroll Expenditures Loosened and Then Tightened
The previous requirement that at least 75% of your borrowed funds had to be spent on payroll has been reduced to 60%. When this change was first announced, there was concern that the way that it was worded meant that if the amount spent on payroll was less than 60% of the total loan proceeds that no amount would be forgiven. However, in remarks made during the week of June 8, Treasury Secretary Steve Mnuchin clarified that if the amount spent on payroll was less than 60%, partial forgiveness would be allowed.
Rehiring Date Extended
Previously, you could avoid reduction of the forgivable amount of your loan if you rehired the same number of full-time equivalent (FTE) employees who had been laid off or furloughed after the pandemic started by June 30, 2020. That date has now been extended to December 31, 2020. In addition, the SBA has provided three ways to avoid loan forgiveness reduction if you are not able to rehire the same number of FTE employees: (1) if you are unable to rehire individuals who were employees on February 15, 2020; (2) if you are unable to hire similarly qualified employees on or before December 31, 2020; or (3) you are unable to return to your February 15, 2020, level of business activity by reason of requirements imposed by the Secretary of the U.S. Department of Health and Human Services (HHS), by the Director of the Centers for Disease Control and Prevention (CDC), by Occupational Safety and Health Administration (OSHA), or by any other worker or safety requirement related to COVID-19 that began on March 1, 2020, and ends on December 31, 2020.
Eight-Week Period May Be Elected
If you are content with the eight-week period to spend your PPP borrowed amounts and you would rather have your rehiring decision determined on June 30 than on December 31, the PPPFA allows you to do so.
This information contained in this publication is for general informational purposes only and is not intended, and should not be construed, as legal, accounting or tax advice. The author expressly disclaims all and any liability and responsibility to any person or corporation who acts or fails to act as a consequence of any reliance upon the whole or any parts of the content above.