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Tuesday, June 9, 2020

PPP borrowers get more time to spend, repay funds

Good news out of Washington: Congress approved and the president signed legislation relaxing forgiveness requirements for the Paycheck Protection Program. The Paycheck Protection Flexibility Act, which became law on June 5, 2020, triples the amount of time small businesses have to disburse funds received under the program and reduces the share of funds that must be spent on payroll to qualify for forgiveness of a loan.

The legislation also extends the required time frame for repaying PPP loans that are not forgiven from two to five years for new borrowers. Existing PPP loan recipients can also extend the repayment period if their lenders agree.

Passage of the new legislation is seen as a major win for restaurants, which have been hard-hit by state-imposed stay-at-home orders and had struggled with the original forgiveness terms. The original program “helped countless businesses, but the restaurant industry has a unique business model and a particularly uncertain path to recovery,” said Sean Kennedy, executive vice president of public affairs at the National Restaurant Association. “[T]hese PPP improvements will help restaurants effectively utilize this vital tool.”

The PPP was launched in April as part of a massive coronavirus stimulus package (the CARES Act) and offered relief to small businesses hard hit by the coronavirus. It authorized low-interest (1 percent) loans of up to $10 million to individual qualifying businesses to cover payroll, mortgage interest, rent and utilities. The program was initially funded at $349 billion, but that money quickly ran out, leading Congress to add another $310 billion to the PPP in late April.

New timeline

PPP loans, which leverage the Small Business Administration’s lending apparatus, are available to small businesses with fewer than 500 employees that were in operation as of February 15, 2020 and have been hard-hit by coronavirus shutdowns. Tax-exempt not-for-profits, veteran organizations, tribal concerns, self-employed individuals, sole proprietorships and independent contractors also can qualify for the loan program. Applicants have until June 30, 2020 to apply for PPP loans if they haven’t already received one.

Under the original legislation, employers were given eight weeks from receipt of PPP loan proceeds to disburse the money, and they were required to spend at least 75 percent of money received on payroll. Now they have 24 weeks to disburse PPP loan funds, and can qualify for forgiveness if 60 percent of the money is used to cover payroll costs.

Any small business receiving funds through the PPP program between June 5 and June 30 automatically gets 24 weeks to use the funds borrowed. Small businesses that already received PPP funding prior to June 5 can opt to extend the eight-week spending requirement to 24 weeks. Whichever period they choose, however, they’re obligated to maintain payroll at pre-coronavirus levels for that entire period to qualify for maximum loan forgiveness.

Added flexibility

The new legislation also offers some much-needed wiggle room on loan forgiveness for companies that can’t rehire employees laid off because of coronavirus-related business slowdowns. Businesses that cannot find qualified workers or are unable to restore business to pre February 15 levels due to coronavirus-related operating restrictions may now qualify for forgiveness on PPP loans.

The original PPP legislation had already made allowances for employers to exclude from forgiveness calculations for employees who turned down offers to return to work at the same hours and wages as prior to February 15.

“Some small businesses may have hesitated to apply for PPP funds because of challenges with the old forgiveness rules,” said Mark Koziel, CPA, executive vice president at the American Institute of Certified Public Accountants.

The Paycheck Protection Flexibility Act also includes provisions allowing PPP loan recipients to delay payment of payroll taxes incurred between March 27, 2020 (when CARES Act took effect) and December 31, 2020. While the CARES Act included provisions for businesses to delay paying their share (6.2 percent) of Social Security taxes, PPP loan recipients were excluded from relief. The Paycheck Protection Flexibility Act makes clear that PPP loan recipients also qualify for this temporary tax reprieve, according to an analysis by the law firm Weintraub Tobin.

All deferred payroll payments must be repaid in equal installments. Half the deferred amount is due by Dec. 31, 2021; the other half by Dec. 31, 2022.

end of article

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