Dear: Client
Last night, the Senate passed the Paycheck Protection Program Flexibility Act. This Act has introduced much more flexibility into the Paycheck Protection Program, through which you may already have received funds. In light of these changes, you can amend your PPP funds usage:
- EXTENSION OF THE COVERED PERIOD
The PPP loan covered period, during which allowable expenses will be forgiven, has been extended from 8 weeks to 24 weeks. The borrower can, upon their discretion, choose either the 8-week period for loan forgiveness, or the extended 24 weeks. Your loan funds will remain the same; but you can now spend them over 24 weeks and have the whole amount forgiven. This will be very beneficial to businesses who have been unable to open their doors, or whose operations are still severely affected by COVID-19.
- FLEXIBILITY IN USAGE RATIOS
Earlier, to qualify for 100% loan forgiveness, the business had to use 75% of the funds on payroll costs, and the other 25% on qualified business rent, business mortgage interest, or business utilities. The amendment passed last night changes these requirements: if at least 60% of the loan funds are used on payroll costs and 40% on qualifying rent, mortgage interest, and utilities, the entirety of the loan will be forgiven. However, two main points are to be taken into consideration; as before, no other uses of the loan will be allowed. PPP funds cannot be used for other business expenses (such as paying off short-term debt and credit cards, or purchasing inventory). Moreover, the Flexibility Act amendment states that unless 60% of the loan funds are used for payroll, none of the loan will be forgiven. This rule may change in the future; however, we would caution you to use at least 60% of the loan proceeds for allowed payroll purposes.
- FLEXIBILITY IN REINSTATEMENT OF EMPLOYEE NUMBERS
Businesses now have until December 31st, 2020, to restore their employee numbers to pre-pandemic levels, instead of June 30th, 2020, in order to qualify for full loan forgiveness. However, even if the entire workforce is not reinstated, a business can qualify for full loan forgiveness if it provides documented evidence that:
- The business offered to re-hire previous employees at the same wages and work hours in writing, but its offers were rejected,
- The business was not able to find qualified employees to take the place of previous employees,
- The business was unable to restore February 15th, 2020, operational levels due to HHS, CDC, or OSHA requirements or restrictions related to COVID-19.
Therefore, your business can delay re-hiring employees for whom you have no work; if proper documentation is in place each step of the way.
- DEFERRAL OF EMPLOYER SOCIAL SECURITY TAXES
Under the CARES Act, employers who received PPP loan forgiveness could not defer payroll taxes. However, through this amendment, such employers can defer only the Employer Social Security taxes portion of their payroll taxes incurred before December 31st, 2020. If 50% of these taxes are paid by December 31st, 2021, and the remaining 50% by December 31st, 2022, the full amount will be considered as paid timely.
This amendment is particularly helpful for those businesses whose loan amounts did not cover their current payroll needs. Such businesses can obtain further relief by delaying employer social security taxes, which are equivalent to 6.2% of employee gross wages.
- LOAN MATURITY PERIOD EXTENSION
Any PPP loan amounts not forgiven can now be repaid in 5 years, instead of the previous requirement of 2 years. All PPP loans issued on or after the President signs the amendment into law will automatically have a maturity period of 5 years. PPP loans received before this date may have their maturity periods re-negotiated, upon the discretion of the lender and the borrower.
As soon as the updated PPP forgiveness application is released, we will be sending out a video about how to fill out the application for maximum loan forgiveness.
As always, we are here to assist you with questions and concerns, so please feel free to contact us at any time. Thank you for your business - we appreciate it very much.
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