Dear clients and friends,
The SBA’s Paycheck Protection Program (PPP) has become the cornerstone of small business economic recovery in the wake of the COVID-19 pandemic. What we also know is that the PPP program was created at a point when Congress assumed companies would only need a very short window of time in order to recover.
Recognizing that circumstances have radically changed, the House and Senate have both passed a bill, called the Paycheck Protection Flexibility Act (PPFA), to update the PPP program and make major adjustments to its core provisions.
Please note that the legislation has not yet been signed into law by President Trump, although he is expected to sign it within days, especially following a unanimous voice vote in the Senate.
The following are key points encoded into the bill, as summarized in an update from the American Institute of Certified Public Accountants (AICPA):
Time Period Extension: Employers may opt to extend from the original 8-week period to a new 24-week period in order to still qualify for loan forgiveness.
Payroll Expenditure Percentage: The payroll expenditure requirement has been lowered from 75% down to 60%.
Forgiveness Eligibility Cliff: It must also be noted that the original legislation allowed for the option of partial loan forgiveness if the 75% threshold was not reached, but that has been eliminated. Now, there is a ‘cliff’ provision so that a company must achieve 60% or more of the PPP expenditure on payroll or there will be zero eligibility for loan forgiveness.
Workforce Restoration Period: The period of time during which an employer may work to restore their workforce to pre-pandemic levels has been extended to December 31, 2020 (the prior deadline was June 30, 2020).
Forgiveness Eligibility Exception: The new legislation allows borrowers to adjust their forgiveness eligibility and still qualify for forgiveness if they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions. For example, if a company operates in a jurisdiction with a very restricted reopening plan and is in a sector which remains dramatically limited in operational scope or allowances, this exception can now be applied.
Extended Repayment Period: Employers will now have five (5) years to repay the loan, rather than two (2) years. The interest rate will remain fixed at 1%.
Payroll Tax Delay Option: The new bill allows employers who took out a PPP loan to delay payment of their payroll taxes as well, whereas this had been prohibited under provisions of the CARES Act.
Again, this legislation has passed both houses of Congress but has not yet been signed into law. However, PPP borrowers should begin planning around the high likelihood that these changes will be signed into law within the next week.
As always, this is a summary and does not detail all permutations or considerations noted in the actual legislation. In addition, we encourage you to reach out to your BradyRenner CPA’s team to assist you with questions or adjusted plans in any way.
This change to the PPP program is extremely good news for small businesses, and we are relieved to see Congress responding positively to the needs of our small business community in these extraordinary times.
Please contact us with any questions, and as always, thank you for your partnership with us.
Matt Brady, CPA