THE LAST DAY FOR A LENDER TO OBTAIN A PPP LOAN NUMBER IS JUNE 30, 2020. IF YOU ARE CONSIDERING APPLYING AND HAVE NOT, DO IT NOW.
As has been the case with this program since its inception, the rules change very quickly and may or may not be retroactive to your particular situation. The Paycheck Protection Program (PPP) was created as part of the CARES act signed into law on March 27, 2020. It provided various types of relief from the impacts of the COVID pandemic to businesses. Additional funding was added to the PPP on April 24, 2020. On June 5, 2020, the president signed into law the Paycheck Protection Program Flexibility Act of 2020 (PPPFA). This legislation incorporated changes to the original Paycheck Protection Program that had been requested by borrowers, lenders and business groups. There were eight major changes incorporated in the PPPFA, some of which were modified by subsequent Treasury Department guidance issued last week.
The eight major changes were:
1. Borrowers that received a loan before June 5, 2020 can choose either an eight week or twenty-four-week period to spend the money received on the PPP loan. Previously, the expenditures had to be made in an eight-week period before June 30, 2020.
2. Borrowers that received loans AFTER June 5, 2020 will have the shorter of twenty- four weeks, or the time from the date of the loan until December 31, 2020 to spend the money.
3. Before PPPFA, 75% of the PPP loan had to be spent on payroll expenses, as such expenses are defined in the PPP and PPPFA. PPPFA lowered that requirement to 60% and appeared to have created a “cliff” where if you did not spend 60% on payroll, none of the loan was forgiven. That “cliff” has been eliminated based upon a revision to the Interim Final Rule regarding the PPP published in the Federal Register on June 16, 2020.
4. The penalty applied to the forgiveness calculation for a reduction in workforce has now been extended to allow for rehiring of a sufficient number of employees by December 31, 2020.
5. There have been exceptions created to the reduction in workforce penalty for businesses that attempted to rehire employees but could not and where federal guidelines prevented the business from being able to rehire a full staff.
6. The repayment period for PPP loan amounts that are not forgiven has been extended to five years, but only for those loans that were received after June 5, 2020. Banks have the option, but not the requirement, to extend the two-year repayment period that existed under the original PPP to the five-year period provided under the new law.
7. All employers can defer payment of the employer’s share of payroll taxes for two years.
8. The definition of what expenses are still deductible is still in question but are addressed in the revised Interim Final Rule dated June 16, 2020.
The Treasury Department also issued new forgiveness applications last week. On June 17, 2020, new forgiveness applications were published. The original forgiveness application was revised to implement the PPPFA changes. Treasury also issued a new EZ version of the forgiveness application for borrowers that:
• Are self-employed and have no employees, OR
• Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees, OR
• Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.
Overall, the PPP is a very positive program for small businesses. The most important thing to remember in either applying for the loan or seeking forgiveness is to get the advice of an accountant and attorney who are familiar with the program. Another point is that if you do get a PPP loan, deposit the funds into a new and separate account that is solely for the purpose of holding and expending the PPP money. It will make the application for forgiveness much simpler.
Feel free to contact Patrick Neale & Associates to help you sort through the PPP maze, and stay safe and well.
The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Patrick Neale & Associates. The reader should not act or refrain from acting based upon the information contained in this article without first contacting an attorney. The hiring of an attorney is a decision that should not be based solely upon advertisements or this article.