Small businesses seeking relief through the Paycheck Protection Program (PPP) have new rules in place to help them maximize their loan usage and forgiveness with a higher degree of adaptability to their unique business model and needs. The passage of the Flexibility Act on June 4, and the Small Business Administration’s (SBA) June 11 publication of its revised PPP Interim Final Rules, spell out key changes to the eligible usage of PPP funds and the guidelines surrounding repayment and forgiveness.
The following are the key takeaways for small business owners who have already applied for PPP loans or are still considering applying by the June 30, 2020 deadline:
>> Coverage Period: The New Rules extend the coverage period—the amount of time a business has to spend their PPP loan—from eight weeks to 24 weeks, not to go beyond December 31, 2020. This new rule is retroactive, so businesses who have already received loans are eligible for an extension from the original eight-week coverage period to the new 24-week coverage period.
>> Maturity Date: For loans made starting June 5, 2020, the maturity has been extended to five years. Businesses whose loans were made before June 5 must abide by the original 2-year maturity date.
>> Deferral Period: The new rules have also expanded the deferral period from the previous timeframe of six months after the end of the covered period. Now, business owners have 10 months from the end of their covered period to submit a loan forgiveness application, and the deferral period lasts until the SBA replies with the loan forgiveness amount. If no loan forgiveness application is submitted within 10 months of the end of the covered period, the deferral ends and the borrower must begin repayment at the end of those 10 months. This new rule is retroactive, so it applies to small businesses who have already received loans.
>> Loan Forgiveness: Previously, 100% loan forgiveness was contingent upon 75% of the loaned monies being used for payroll costs, and no more than 25% being used on other eligible expenses. This has been modified to 60% allocation towards payroll costs and no more than 40% on eligible non-payroll expenses. Loans can be forgiven in whole or in part, depending on the borrower’s adherence to the rules governing eligible expenses and usage of PPP funds. These new rules for loan forgiveness are retroactive as well.
>> Safe Harbor: A new Safe Harbor provision is in place which stipulates that businesses that are not able to rehire to their February 15, 2020 workforce level will not have their loan forgiveness amount decreased if the reason is that they are not able to find qualified employees to rehire, or if they can’t restore their business to full February 15 operational capacity due to pandemic-related regulations or restrictions.
While these updates provide much-needed flexibility for small businesses, some questions remain. Clarification is yet to be made about the dates that Safe Harbor measurements are available, as well as what happens in the event that a business owner has to reduce staff after the loan forgiveness application is already submitted.
As rules and requirements continue to evolve, be sure to consult with your trusted small business CPA firm to stay current and maximize your business’ ability to access, use, and obtain forgiveness for PPP loans.
Matt Brady, CPA