PPP Loan Forgiveness Modification Legislation
May 31, 2020
House Passes PPP Loan Forgiveness Bill, Treasury Issues Harsh Forgiveness Regulations—What You Need To Know
June 3, 2020, 7:02 pm
Senate passes bill lengthening coronavirus small-business loan terms
PPP forgiveness changes coming as Senate passes House bill
The Senate approval sends the House bill, called the Paycheck Protection Flexibility Act, to President Donald Trump, who is expected to sign it.
{{Update June 5 – Bill signed into law.
Washington has processed 4.4 million forgivable loans valued at a total of $510 billion. A total of $659 billion has been provided by Congress for the loan program, which is part of broader coronavirus emergency aid totaling around $3 trillion so far.
The new legislation, passed by the House on March and passed by the Senate on June 3, has made some well-needed changes to the program.
The two most remarkable changes regarding loan forgiveness are:
• increasing the 8-week spending timeline to 24 weeks
• moving the June 30 deadline to December 31
• changing the 75% requirement for use for payroll to 60% - thus allowing 40% of the PPP loan to be used for other business expensesanother summary by restaurant.org:
• Extending the expense forgiveness period from eight weeks to 24 weeks
• Reducing the payroll ratio requirement to 60 percent
• Increasing the loan repayment period from two to five years on new loans
• Allowing payroll tax deferment for PPP recipients
• Extending the June 30 rehiring deadlineFollowing is a summary of the legislation’s main points compiled by the AICPA:
• Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers 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. 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), who co-sponsored the bill in the House, 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.
• Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
• The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those 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 borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
• New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
• The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
Small business owners are strongly encouraged to have an accountant assist them in the calculations and documentation for loan forgiveness.
Any small business owner who has not applied for PPP loan through a bank or fintech is encouraged to investigate more and learn if they qualify. The Dallas Metropolitan SBDC is available for assistance and to discuss these issues with you.
Read more:
https://finance.yahoo.com/amphtml/news/u-senate-passes-bill-lengthening-000216719.html
https://www.journalofaccountancy.com/news/2020/jun/ppp-loan-forgiveness-changes-coming.html
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