Situation Analysis
Important information on the PPP Loan Forgiveness Program.

New (and Important) Updates to the PPP Loan Forgiveness Program

New (and Important) Updates to the PPP Loan Forgiveness Program

Now well into its fourth month since its enactment, the Paycheck Protection Program (PPP) has proven to be the lifeline many businesses needed to stay afloat as they await reopening. However, the short experience of the PPP showed it to be too inflexible with unrealistic timelines. So, addendum legislation was enacted on May 28, 2020 to provide greater flexibility and other enhancements to the PPP. The Paycheck Protection Program Flexibility Act (HR 7010) makes it much easier for businesses to comply with the loan forgiveness provisions of the PPP, ensuring more businesses can maximize their loan forgiveness.

(Note: A new Interim Final Rule was issued on June 5 that updates and clarifies some of changes made by HR 7010. Those updates are included here).

Here are the key provisions of the Paycheck Protection Flexibility Act as supplemented by the Seventeenth Interim Final Rule.

Covered period extended

The biggest concern of the PPP was that, at eight weeks, the covered period for including eligible expenses under the loan forgiveness provision was to short. Congress agreed so it used HR 7010 to extend the covered period to the earlier of December 31, 2020 or 24 weeks. Borrowers who received a PPP loan before June 5 may now choose between the eight-week covered period of the longer covered period.

Payroll expense requirement lowered

The original requirement that 75% of PPP loan proceeds by applied to payroll costs was also found to be to limiting. HR 7010 reduced that requirement to 60%, allowing business to spend up to 40% of their PPP loan proceed on nonpayroll costs. The new Interim Final Rule states that if a business uses less than 60% of the loan proceeds for payroll cost, they can still receive loan forgiveness if at least 60% of the loan forgiveness amount was applied to payroll costs.

Eligibility for payroll tax deferral expanded

Under the PPP, businesses that received a PPP loan were not allowed to utilize a provision of the CARES Act allowing for the deferral of the 6.2% payroll tax on wages. Under the provision, businesses could defer payroll tax payments on wages paid through December 31, with payments due in equal installments by the 31st pf December in 2021 and 2022.

The update changes that to allow businesses that did receive a PPP loan the same tax deferral. 

Rehiring deadline extended

The deadline for restoring workforce levels and wages to pre-pandemic levels to qualify for full loan forgiveness was extended from June 30 to December 31, 2020. HR 7010 also included new exceptions allowing businesses to receive full loan forgiveness even if they are unable to fully restore their workforce. Now businesses will be exempt from the requirement if they are unable to find qualified employees or were unable to fully restore business operations to pre-pandemic levels due to COVID-19-related operating restrictions.

Loan term extended

HR 7010 extends the unforgiven portion of a PPP loan from 2 years to not less than 5 years. This applies to loans originated after the enactment of HR 7010 on June 5. For loans originated before June 5, the borrower and lender can come to an agreement on a term extension.

PPP application deadline extended

Originally, HR 7010 extended the PPP loan application period from June 30 to December 31. However, the new Interim Final Rule stated that the Small Business Administration will not accept applications past June 30. But, on July 4, President Trump signed into a law an extension of the deadline to August 8, 2020. This particular provision seems especially fluid. So stay tuned.

In fact, most of the PPP forgiveness requirements seem to be fluid, sometimes changing weekly. You can bet there will be more updates and clarifications. It helps to work closely with an advisor who closely follows the PPP implementation to ensure you are up to date with its requirements for maximizing your loan forgiveness.

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