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New law relaxes PPP rules

On June 5, President Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA) in an attempt to address concerns that many small businesses expressed about the Paycheck Protection Program (PPP).

These important changes prompt SHOPNoble to strongly encourage Noble County's small businesses who have already applied, and those who did not apply due to restrictions on use of funds and/or challenges posed with rehiring and loan forgiveness requirements, to revisit PPP!

The PPPFA, passed late last week, addresses flaws in the original PPP program, including:

Reduces amount of loan needed for payroll from 75% to 60%

The biggest complaint around PPP as that it required businesses to spend 75% of the loan on payroll, which for many meant playing the role of unemployment office, paying their workers to stay home and do no work. The PPPFA reduces the amount of the loan needed to be spent on payroll from 75% to 60%, which increases the amount of funds available for other expenses from 25% to 40% of the loan amount. The "non-payroll" portion, 40% of the loan, may now be used for these eligible expenses: rent, mortgage payments, utilities, and interest on loans.

Extends time period to use funds from 8 weeks to 24 weeks

Previously, businesses were required to spend PPP funds within eight weeks of when they were received. The PPPFA now gives businesses the flexibility to spend PPP money over 24 weeks from time received. This extension makes receiving loan forgiveness more likely, since the application is based on payroll costs for about ten weeks. The change does not require a business to wait 24 weeks to apply for forgiveness. They can still apply for forgiveness after eight weeks, if they prefer.

Deadline to rehire workers pushed to December 31, 2020

Originally, under PPP, businesses were required to bring back all workers by June 30 in order for their wages to be counted towards loan forgiveness. With the PPPFA, businesses now have until December 31 to rehire and have worker wages count towards forgiveness on the loan. Payroll calculations were not changed with PPPFA. The cap is still at $100,000, with owners and contractors capped at $15,385. Experts predict the extra six months of expenses that are eligible under PPP will likely make up for any gaps and still ensure 100% loan forgiveness for most borrowers.

Rehire requirements eased

The PPP originally required a business to hire back the same number of full-time employees (or full-time equivalents) by June 30, unless, shown in writing, an employee rejected a re-hire offer. PPPFA extends the rehire date to December 31 and adds more exceptions for a reduced headcount and still have loan forgiven. Exceptions for rehiring the same number of employees now include if a business:

  • Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;

  • Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or

  • Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.

It appears that that even with a reduced head count, based on these exceptions, if 60% of the loan is still used on payroll throughout the remainder of 2020, it will be forgiven. Solid documentation in writing is strongly urged as businesses attempt to rehire employees through December 31, 2020 to gain forgiveness (document offers and responses, for example).

Extends the repayment term from 2 years to 5

PPPFA eases repayment terms of PPP loans. In the event loans or portions of them are not forgiven, a business will now have five years at 1% interest to repay the loan and the first payment will be deferred to six months after a determination is made on forgiveness. This means a business could have until May of 2021 to make the first payment on the unforegiven portion of a PPP loan.

Allows borrowers to include deferred payroll taxes in forgivable portion

The PPPFA allows borrowers to take advantage of the CARES Act provision that allows deferment of the employer's payroll taxes for Social Security. This expenses is now included on the forgivable portion of the loan.

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