Sweeping Changes to PPP Legislature

The U.S. Senate passed the House version of Paycheck Protection Program (PPP) legislation last night, tripling the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness of the loans. The adopted legislation provides desperately-needed flexibility and relief to countless small businesses. It gives small businesses a more realistic timeline to get the help they need while they bring back employees.

The Senate approval sends the House bill, called the Paycheck Protection Flexibility Act, to President Donald Trump, who is expected to sign it.

Here is a summary of the legislation’s main points: 

• PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
• The payroll expenditure requirement drops to 60% from 75%. However, 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.
• 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, extended 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.
• Loan term has been extended from 2 years to 5 years. The interest rate remains at 1%.
• The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.

Our observations and recommendations:

• For most businesses who received the loan in April or May, the extension to the 24 weeks will bring them to October or November, respectively.
• If your business is not yet reopened and you have not spent the PPP funds, you now have the opportunity to utilize the funds for payroll when you reopen within the 24 weeks period.
• For those businesses that end up with a loan, the extended loan term will reduce monthly payment amount.
• Delayed payment of payroll taxes will ease cash flows concerns for some business owners. However, at the present time, it is unclear as to when the deferment deadline would be. We’ll keep you posted as more details emerge.
• We recommend that businesses continue to disburse their PPP loan proceeds based on the new legislature.
• We recommend that business owners and finance professional to hold off on completing the current forgiveness application form as we are expecting changes to the application form based on this new legislation.

CFO Connections is here standing by to help you navigate through the PPP landscape so that you can focus on reopening and rebuilding your business. We offer complimentary financial health assessment and deferred payment plan for businesses that have been negatively impacted by the COVID-19 pandemic. Contact us here.