New Legislation Extends and Adjusts PPP

Congress recently passed additional Paycheck Protection Program legislation that President Trump is expected to sign soon. The new rules — called the Paycheck Protection Program Flexibility Act of 2020 — give borrowers three times as much time to use PPP loan proceeds to pay for business expenses.

Here’s an overview of all of the changes:

• Businesses now have 24 weeks from the date their loan originates or Dec. 31, 2020, whichever comes first, to spend their PPP proceeds. However, borrowers prior to the Flexibility Act can opt to continue with their original eight-week loan period.
• As long as an employer restores their full-time employees or their salary/hourly wages to their Feb. 15 levels by the end of 2020, there won’t be a reduction in forgiveness. Businesses that remain fully or partially closed will also get relief if they meet certain criteria. The act included a provision that eliminated the proportional reduction in loan forgiveness if the borrower can provide appropriate documentation.
• Businesses can use a greater percentage — now 60% versus 75% — of loan proceeds for non-payroll expenses, like mortgage interest, rent, and utilities. But businesses will want to be extra cautious with this new percentage; if a borrower fails to spend 60% of the loan on payroll, none of the loan will be forgivable. It’s possible the Small Business Administration may make tweaks to the 60% rule or issue additional guidance. But in the meantime, business owners will need to track their expenses carefully to make sure their spending percentages match their loan requirements.
• Businesses now have up to five years to repay any part of their loan that’s not forgiven. That’s up from the previous two years. Technically, the repayment period applies only to loans that originate after the bill was passed. However, borrowers can renegotiate the terms of any PPP loan to match the new five-year repayment period.
• Borrowers now have the option to defer paying certain payroll taxes for up to two years after the loan is forgiven.
• Borrowers don’t have to start their repayment until the SBA determines whether their loan is forgiven.

Despite that the Flexibility Act addressed some major concerns about PPP loans, it also left several questions. The unknowns include:

• Language in the new bill that says employers will be required to comply with coronavirus standards. Right now, it’s not clear what those standards are.
• What types of expenses are eligible for forgiveness, what the bill means by expenses paid and expenses incurred, or whether or not all payroll costs — including health and retirement benefits — are considered to be paid when employees receive their paychecks, regardless of the date the funds were remitted to benefit providers.
• What it means to replace or rehire employees or to restore pay. Right now, it’s unclear if these are single-point-in-time tests or if an employer must rehire, replace employees, or restore their employees’ pay for a certain period of time to qualify for forgiveness.
• Details about the new safe harbor that waives the proportional reduction of forgiveness if a borrower can’t rehire or replace employees. The new bill doesn’t define what an “inability” is —other than one example of limitations HHS, CDC, or OSHA have placed on businesses.
• Whether or not the new bill also increases the maximum compensation of any single employee or business owner that is eligible for forgiveness from $15,385 to $46,154. Most experts believe the new max compensation amount will adjust.

We expect additional guidance and an updated loan forgiveness application soon. In the meantime, we will continue to review the legislation to keep you informed as additional information becomes available.

As a reminder, we’ve created a tool that’s able to quickly pivot with these new changes to help you determine your PPP loan forgiveness levels. If you’d like more information, talk to one of our advisors today.

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.