Congress has passed a bill with significant changes to the Paycheck Protection Program, which has been signed into law by President Trump. The bill was only four pages long, but it will have a significant impact on small businesses that were able to obtain a Paycheck Protection Program (PPP) loan under the CARES Act. We've outlined the key points of this new legislation below.
Key Factors
- Businesses now have 24 weeks to spend money received from PPP loans (as opposed to 8 weeks).
- Previously, at least 75% of the loan amount needed to be spent on payroll costs. Now, only 60% of the funds must be spent on payroll. The remaining part of the loan can still only be spent on rent, interest and utilities.
- The last date any business can spend PPP money has been extended from June 30th to December 31st.
- Businesses now have 10 months after the 24-week period to apply for loan forgiveness.
- For all practical purposes, the requirement that the reduction in the loan forgiveness based on a reduction in the number of employees has gone away. Now, businesses have to simply document an inability to return to the same level of business activity.
Debt Forgiveness
Original: Under the CARES Act, businesses who received PPP funding were required to spend the money on eligible expenses no later than 8 weeks after the loan date originated.
Revision: The period has been extended to 24 weeks from the date the loan originated or December 31, 2020, whichever is earlier.
Funding Utilization
Original: Money received through a PPP loan can only be spent on payroll costs, rent, interest and utilities. Additionally, at least 75% of the money received had to be spent on payroll costs.
Revision: Eligible expenses still include only payroll costs, rent, interest and utilities, but now only a minimum of 60% of the funding must be spent on payroll costs.
Loan Forgiveness Reductions
Original: The amount of debt increase forgiveness would be decreased if during the covered period there was a decrease in full-time equivalent (FTE) employees, or if certain employees compensation were decreased by greater than 25%. However, if either the salary reductions or FTE counts were restored to what existed as of February 15, 2020 - no later than June 30th - the reduction in forgiveness would be ignored.
Revision: The same calculation for reducing debt forgiveness exists, but now the tracking of FTEs and salary reductions increases to 24 weeks past the loan origination date or December 31, 2020, whichever is earlier. Additionally, the reduction in debt forgiveness can be ignored if the FTE or salary reductions are restored to the levels they were on February 15th no later than December 31, 2020.
Furthermore, the number of FTEs can be determined without a reduction if the business:
- Is unable to rehire an individual who was employed on or before February 15th and is able to demonstrate an inability to hire a similarly-qualified employee on or before December 31, 2020, OR
- Is able to demonstrate an inability to return to the same level of business activity that existed prior to February 15, 2020, due to a variety of factors.
Extension of Deferral Period
Original: The SBA originally set the deferral period for principal, interest, and fees at six (6) months.
Revision: Principal, interest, and fees may now be deferred until the date on which the amount of forgiveness determined is remitted to the lender. Borrowers have ten (10) months from the last day of their covered period to apply for forgiveness. If they fail to do so, they will immediately be responsible for any principal, interest, and fee payments.
To that end, the SBA has also extended PPP loan maturity from two (2) years to five (5) years. The interest rate remains at 1%.
Addition
Original: The ability to defer employment taxes for payroll ended on the date the bank notified the PP borrower of their forgiveness amount.
Revision: Now, a PPP borrower can defer their employment taxes through December 31, 2020, regardless of when they receive notification of their PPP forgiveness amount.
