Great news arrived last evening for all businesses who have received or plan to apply for a Paycheck Protection Program (PPP) loan. This is a much-needed update to the program and will mean more of you will be able to get more of your PPP loan forgiven. The President is expected to sign the bill into law.
Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or you can keep the original eight-week period. If you’re a new PPP borrower you will have a 24-week covered period, but the covered period can’t 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% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. This change is significant, so we need to be sure to watch your numbers very carefully.
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. Rep. Chip Roy (Texas) said in a House speech that the bill intended the sliding scale to remain in effect at 60%. Senators Marco Rubio and Susan Collins indicated that technical tweaks could be made to the bill to restore the sliding scale… Just figures we’re still going to be waiting for politicians to get their jobs fully complete!
You can use the 24-week period to restore your workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by December 31, a change from the previous deadline of June 30.
The legislation includes two new exceptions allowing you to achieve full PPP loan forgiveness even if you don’t fully restore your workforce. Previously you could exclude from your forgiveness 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 you to adjust because you could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
You now have five years to repay the loan instead of two. The interest rate remains at 1%. So, even if some of your loan is not forgiven it is still a wonderfully inexpensive source of working capital.
Even better news though, is that the Bill allows you to also delay payment of some of your payroll taxes, which was previously prohibited if you had a PPP loan.
There are a lot of details and moving parts for all this new information. The team here at Scholl & Company is ready to help you sort through your options and opportunities.
Give us a call at (831) 758-5966 or email us at info@schollcpa.com with any questions or requests.