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PPP Loan Recipients Get More Time to Spend Funds, Qualify for Forgiveness

June 2020

Details surrounding Paycheck Protection Program (PPP) loans and forgiveness are fluid and changing, but new legislation will increase the amount of time small businesses and other recipients must spend PPP loan funds and qualify for forgiveness of the loans.

The Paycheck Protection Flexibility Act, which has been approved by Congress and signed by President Donald Trump, triples the amount of time loan funds can be spent—moving the deadline from June 30 to Dec. 31, 2020. The deadline for applying to receive a PPP loan is still June 30.

After the first round of PPP funding was used up so quickly, the program was replenished with $310 billion beginning April 27. More than a month later, there’s still an estimated $120 billion in funding available for small businesses. 

These main points from the legislation--compiled by the American Institute of CPA, the world’s largest member association representing the accounting profession of which Anthony Hoffmaster, CPA, is a member—were published in the June 4 online article of the Journal of Accountancy:

  • Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period cannot extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.

  • Under the language in the House bill, the payroll expenditure requirement drops to 60 percent from 75 percent but is now a cliff, meaning that borrowers must spend at least 60 percent 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 percent of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75 percent threshold is not met. Rep. Chip Roy (Texas), who co-sponsored the bill in the House, said in a House speech that the bill intended the sliding scale to remain in effect at 60 percent. Senators Marco Rubio and Susan Collins indicated that technical tweaks could be made to the bill to restore the sliding scale.

  • Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.

  • The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. 

  • The new bill allows borrowers to adjust because 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.

  • New borrowers now 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. The interest rate remains at 1 percent.

  • The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.

Questions? Contact Anthony Hoffmaster, CPA, CES, MST, by phone 919-435-4413 or email to discuss financial assistance options, including federal loan programs, tax credits, economic impact payments and other available financial relief options.

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