Understanding the Changes Surrounding PPP Loan Forgiveness
On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 into law. This legislation amends the CARES Act in a number of ways, but among its most crucial components is the easing of requirements and restrictions surrounding Paycheck Protection Program (PPP) loans.
The CARES Act initially established a $349 billion fund for PPP, with loans overseen by the Small Business Administration (SBA). The program was infused with an additional $320 billion in April and, as of May 30, 2020, funds for loans are still available. The deadline for new PPP loans remains June 30, 2020. The goal was to help small businesses survive the economic hardships related to COVID19, with incentives of loan forgiveness should a certain amount of funding be devoted to maintaining payroll and restoring employment to pre-pandemic levels.
Many have been critical of the arguable impracticality of the regulations prior to this new legislation. If you own a small business and took out a PPP loan or are considering doing so before the June 30 deadline, it is essential you understand the changes in rules governing these funds, particularly those impacting the PPP forgiveness application.
We at the SIMPLYLEGAL team have reviewed the PPP Flexibility Act of 2020 and have identified the most pertinent factors that could affect your business’s application for loan forgiveness.
Flexibility in Eligibility Period
Originally, PPP borrowers were limited to an 8-week eligibility period for loan forgiveness. Existing PPP borrowers now can choose to either keep the 8-week period or extend to a 24-week period. New PPP borrowers will automatically have 24 weeks, though the eligibility period cannot extend past December 31, 2020. This change gives borrowers more time to restore their workforces and wages to pre-COVID levels and thereby achieve loan forgiveness conditions.
Extensions on Repayment Deadlines
If only partial loan forgiveness can be achieved, new borrowers will now have 5 years to repay. PPP loans taken out before the new legislation must be repaid in 2 years, but they are also now eligible to be extended for up to 5 years if the borrower and lender mutually agree. In either scenario, the interest rate remains locked at 1%.
Relaxed Payroll Requirements
Previously, a borrower had to apply 75% of the PPE loan to maintaining payroll to qualify for loan forgiveness. This requirement has been relaxed to 60%.
There has been some confusion over whether or not this change includes making the 60% threshold a “cliff,” as vague legislative language led some legal interpreters to believe a borrower would not be eligible for even partial forgiveness should they not apply that amount or more to payroll expenditures. However, the United States Treasury and SBA have clarified that the 60% minimum is not a cliff. This means you are still eligible for partial loan forgiveness if you devote less than 60% to payroll costs.
Additional Time to Remit Payroll Taxes
The CARES Act did not initially allow any delay in making payroll tax payments if the borrower’s PPP loans were forgiven. The new legislation eliminates this condition, allowing borrowers to both pursue loan forgiveness as well as postpone the employer’s share of payroll taxes.
If this option is utilized, deferred payroll taxes are split into two repayable installments. The first half is due by December 31, 2021, with the second half due by December 31, 2022. It is presently unclear if there will be any recourse for those with forgiven PPP loans that have already paid payroll taxes.
Bonuses & Hazard Pay Are Eligible
It was initially unclear if excess employee cash compensation was considered forgivable as part of the PPP loan program. The SBA has clarified that this type of compensation, which includes bonuses and hazard pay, indeed qualifies for forgiveness, so long as an employee’s total compensation does not exceed $100,000 annually.
Audits Are Possible
The Loan Forgiveness Application Form alluded to the need to retain documentation in the event of an audit. Language in an Interim Final Rule published on May 22, 2020 cements this requirement, clarifying borrowers should retain all documentation relating to their use of PPP loans for 6 years following the full repayment or forgiveness of the loan’s balance. The borrower must provide any relevant documentation to the SBA if requested in this 6-year period.
Questions About PPP Loan Forgiveness?
The rules surrounding PPP loan forgiveness have proven fluid and continue to change as the COVID19 pandemic evolves. We at SIMPLYLEGAL work to emphasize our clients’ best interests, and we are ready to help guide you through the PPP loan forgiveness application.
If you have questions about your existing PPP loan or are considering applying before the June 30, 2020 deadline, call (305) 676-9328 or contact us online today. We offer complimentary consultations in exchange for a donation to The Muscular Dystrophy Association (MDA) or any charitable organization of your preference.