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The president has signed the revamped PPP bill into law!
This is fantastic for anyone who is currently applying for a Paycheck Protection Program (PPP) or who already had one.
Here are a few of the key features:
- Businesses will have 24 weeks to use the funds to rehire workers which will last all the way to December 31, 2020.
- The amount of loan forgiveness will be determined without regard to a proportional reduction in the number of full-time employees if certain conditions are met.
- Employers only have to use 60% of the loan for payroll costs
- A business can still receive forgiveness on payroll amounts if it:
- 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.
- A business now will have up to five years at 1% interest to repay the loan.
You can find more details about this bill below.
The Paycheck Protection Program (PPP) has been one of the most important programs offered by the CARES Act. Even though it quickly ran out of money and had some controversy over funding some large publicly traded corporations, it’s helped small businesses stay afloat and cover expenses such as employee compensation.
On May 27, 2020, the House passed the Paycheck Protection Program Flexibility Act by 417-1, which is aimed at making loan forgiveness under the PPP easier.
Under this new bill, it reduces the requirement for the amount of the loan that needs to be spent on payroll from 75% to 60%, increasing the amount of funds for “other” expenses from 25% to 40%. These other expenses include business expenses such as: rent, mortgage payments, utilities, and interest on loans.
Other provisions would make things easier for forgiveness by allowing a business to have 24 weeks to use the funds instead of eight weeks, pushing the June 30 deadline to rehire workers all the way to December 31, 2020, letting companies defer payroll taxes, and extending the time recipients have to repay the loan.
This bill comes at a time when the Treasury department has published new rules regarding the loans which are making things more difficult for business owners.
Loans that were given for under $2 million were supposed to have been made in good faith and thus presumably face lower scrutiny when it comes to forgiveness.
But now it is clear that loans of any size may be reviewed for eligibility for forgiveness.
“For a PPP loan of any size, SBA may undertake a review at any time in SBA’s discretion. For example, SBA may review a loan if the loan documentation submitted to SBA by the lender or any other information indicates that the borrower may be ineligible for a PPP loan, or may be ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower. 13 CFR 120.524(c).”
There are also potential issues if a borrower had access to credit.
For example, according to Forbes, “The SBA could review your loan and determine you had credit elsewhere or other funds, and require you to pay back the loan in full or in part.”
There are also more burdensome requirements like maintaining all files and paperwork for the loan for six years.
“As noted on the Loan Forgiveness Application Form, the borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request from the time of application.”
The guidelines also put the responsibility on the borrower to make the calculation for forgiveness. This calculation may not always be so obvious and could require additional work done by a qualified CPA.
The rehire date is also still June 30 with the new regulations, something that many want extended out much further.
Also, the amount that you will be forgiven on your loan is directly tied to maintaining the same number of full-time employees. So your forgiveness amount will be reduced by the same percentage that you reduce your full-time employees by. The full-time requirement usually required by SBA is 32 hours per week but under the PPP, it will be 40 hours per week.
Reduced wages can also affect forgiveness. For example, if wages are reduced over 25% per employee, the loan will not be forgiven for those wages.
We will see if the bill from the House of Representatives makes its way through the Senate. There are already discussions about making changes to the PPP forgiveness in the Senate so chances are something will pass that makes these new regulations less strict than they currently are.
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Daniel Gillaspia is the Founder of UponArriving.com and creator of the credit card app, WalletFlo. He is a former attorney turned full-time credit card rewards/travel expert and has earned and redeemed millions of miles to travel the globe. Since 2014, his content has been featured in major publications such as National Geographic, Smithsonian Magazine, Forbes, CNBC, US News, and Business Insider. Find his full bio here.