Small businesses will have more flexibility to use Paycheck Protection Program loans as a result of legislation passed unanimously by the Senate this week.
The bill – titled the Paycheck Protection Flexibility Act – was passed in the House last week and is expected to be signed into law by President Trump.
The bipartisan bill makes several changes to PPP rules as a result of outcry from business owners, who said they struggled to meet previous terms and expressed concern about taking on debt while recovering from stay-at-home rules. The bill addresses many of those concerns, especially for self-employed entrepreneurs and businesses that haven’t yet reopened.
Here is a closer look at the highlights of the legislation:
- New PPP borrowers have five years to repay the loan instead of two. Existing PPP loans can be extended up to five years if the lender and borrower agree.
- Borrowers can delay payment of certain payroll taxes, which was prohibited under the CARES Act.
- Current borrowers have the option to extend the eight-week period to 24 weeks; new PPP borrowers will automatically have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020.
- Borrowers can use the 24-week period to restore workforce levels and wages to pre-pandemic levels required for full forgiveness. This must be done by Dec. 31; the deadline previously was June 30.
- The payroll expenditure requirement drops to 60%, but borrowers must spend at least 60% on payroll or none of the loan will be forgiven. (Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met.)
- The legislation includes a new exception allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude employees who turned down good-faith offers to be rehired. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15 levels due to COVID-19 restrictions.
The PPP remains an evolving program with frequent updates and guidance from the Treasure Department. If you have questions about loan forgiveness and the latest regulations, reach out to a professional at KraftCPAs.