PPP Loan Forgiveness Becomes More Flexible

June 18, 2020

PPP Loan Forgiveness Becomes More Flexible

When Paycheck Protection Program (PPP) loans first became available in late March, business owners immediately expressed concern about meeting the forgiveness requirements that essentially turn the loan into a grant.

Some of those concerns were alleviated June 5, 2020 when President Trump signed the Paycheck Protection Program Flexibility Act (Flexibility Act) of 2020, making significant changes to the forgiveness portion of PPP loans. 

These changes (as below) give businesses more time to spend the funds and lower the threshold that must be spent on payroll:

Payroll Cost Percentage
The payroll expenditure requirement drops from 75% to 60%.  There was concern that the 60% requirement was a “cliff”, meaning that borrowers must spend 60% on payroll, group health insurance and retirement plan contributions or none of the loan would be forgiven.

The Small Business Administration (SBA) and the Treasury Department issued regulations June 11 clarifying that borrowers would be eligible for partial loan forgiveness if they don’t meet the 60% threshold.

Covered Period
The Flexibility Act modifies the covered period during which the borrower can incur and pay permissible expenses.  Originally, PPP borrowers had an eight-week window, but that has been extended to 24 weeks or to December 31, 2020.  Borrowers who received their funds prior to the Flexibility Act have the option to stick with the original eight-week period or go with the new 24-week period.

Rehiring Employees
June 30, 2020 was the previous deadline for restoring workforce levels and wages to pre-pandemic levels required for full forgiveness.  That date has been moved to December 31, 2020.

The Flexibility Act also expands the rehiring exemption for loan forgiveness.  Under the CARES Act and related SBA guidance, forgiveness amounts would not be reduced due to reductions in Full-Time Equivalents (FTEs) if an employee was fired for cause or resigned.  This has been expanded to include the inability to return to the same level of business activity as February 15, 2020 due to public safety standards related to Covid-19.

Applications by Felons
The rule that individuals with felony convictions within five years before applying cannot qualify for a PPP loan has been changed to one year. Five years still applies if the charges were for fraud, robbery, embezzlement, or a false statement on a loan application.

Loan Maturity & Deferral
For portions of the loan that are not forgiven, borrowers now have five years to repay the loan instead of two.  However, for loans that were disbursed before the Flexibility Act, the two-year maturity date still applies, but borrowers are advised to work with their lenders for an extension.

A six-month payment deferral was in place before the Flexibility Act but has been modified until the date that the lender receives the forgiveness amount from the SBA.

Payroll Tax Deferral
Businesses that received PPP funding can delay payment of their payroll taxes, which was prohibited under the CARES Act.

Forgiveness Applications
The time period in which borrowers had to apply for loan forgiveness was one area that was not addressed in the CARES Act.  The Flexibility Act indicates that borrowers must apply for loan forgiveness within ten months after the last day of the covered period. 

Deadline for Applications
The deadline for applying for a PPP loan remains June 30, 2020.  However, close to $130 billion in PPP funds remain available (out of $660 billion) and there has been discussion about keeping the program open until all the money has been dispersed. 

New PPP Loan Forgiveness Application
On June 17, SBA released a more borrower-friendly Paycheck Protection Program (PPP) loan forgiveness application.  This update included a new EZ version of the form for borrowers that meet one of the following criteria:

  • 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%.

The EZ version requires fewer calculations and minimizes documentation requirements.  Both the standard and EZ applications allow the option of using the 8-week covered period for loans made before June 5, 2020 or extending to a 24-week coverage period.  This is a key change aimed to make the process easier for businesses to maximize PPP loan forgiveness.  Links for both forms can be found here.  

More to Come
The final word on PPP loan forgiveness is not in. 

Within Congress, the House Small Business Committee is holding hearings this week on blanket PPP loan forgiveness for loans under $150,000 - which accounts for roughly 85% of PPP loan recipients.  At Herbein + Company, our professional staff is constantly monitoring the situation and will provide updates when details become available.

For additional information contact us at info@herbein.com.


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