When the Paycheck Protection Program (PPP) was instituted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020, business owners breathed a sigh of relief. At the same time, however, many found themselves pulling out their hair. Although generous, the ever-evolving rules surrounding the PPP were confusing and, in many ways, limiting.
You see, the PPP gave eligible businesses and nonprofit organizations federally guaranteed loans to cover payroll, rent, utilities, and other specified expenses during an eight-week “covered period.” (A borrower’s covered period began immediately upon loan origination.) Even better, PPP loans could be 100% forgivable if the borrower didn’t lay off employees and spent the loan proceeds in accordance with PPP rules.
Unfortunately, many borrowers were forced to close or drastically reduce services within their covered periods due to government-mandated shutdowns, which made it impossible for them to meet the strict PPP rules. What’s more, the Small Business Administration (SBA) and U.S. Treasury Department were constantly tweaking the rules in response to requests for clarification.
Enter the Paycheck Protection Program Flexibility Act (PPPFA). On June 5, 2020, President Trump signed the PPPFA into law to give borrowers more leeway for spending loan proceeds and achieving loan forgiveness. Here are the key points you should know about it.
1. More time to apply for a PPP loan
Eligible businesses and nonprofits can apply for a loan until June 30, 2020; however, there still is a limit of one PPP loan per business. If you think you could be eligible for the PPP but haven’t applied, now’s the time to act.
2. More time to repay your PPP loan
If you don’t achieve 100% forgiveness, you’ll have to repay some of your PPP loan. The original PPP rules stipulated that repayment must begin six months after the covered period ends. The PPPFA pushes this back to 10 months.
3. More time to spend your PPP loan
To achieve full forgiveness, borrowers now have 24 weeks (instead of eight) to reach pre-pandemic employment levels and spend the loan proceeds. Employers can file for forgiveness using the original rules or using the modified 24-week period.
4. More exceptions for targeted employment levels
The PPPFA includes more exceptions for not meeting targeted employment levels due to compliance with worker safety rules.
5. Deferral of Social Security tax payment for the rest of 2020
The CARES Act included a provision that allowed employers to choose to defer payment of their employer portion of Social Security tax for the rest of 2020. The PPPFA passed by Congress makes it easier for employers to qualify for this provision. Fifty percent of the deferred payroll tax is due on Dec. 31, 2021, and the remaining 50% is due on Dec. 31, 2022.
6. More guidance expected shortly.
Yes, things could change again. As the dust from the PPPFA settles, we expect the SBA to publish additional guidance on the new law.
When should you apply for loan forgiveness?
Contrary to what you may have heard, there is not a deadline for the PPP borrower to provide information on loan forgiveness to the bank. In other words, there’s no pressure to rush your forgiveness application. That said, if, under the current rules, you can achieve 100% forgiveness, there’s no reason to wait, either.
What should you do now?
If you’re ready to consider applying for a PPP loan or loan forgiveness, we can help. We can also outline how the current rules apply to your situation, so you can decide to apply for forgiveness either now or later.
It’s hard to say when, if, or how the PPPFA rules will change. We’ll be watching them closely, so you can better understand your options. In the meantime, check out our list of helpful COVID-19 resources for more on the PPP.
Contact you PWB advisor today.
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