We hope you are continuing to stay safe and healthy as Southeastern Pennsylvania plans to move into the “Yellow” phase of reopening. We’re pleased to report that good news for business owners arrived late last evening when the Senate passed the Paycheck Protection Program Flexibility Act of 2020, providing long-awaited and much-needed relief by modifying some original provisions of the Paycheck Protection Program (PPP) that were hastily signed into law with the March passage of the CARES Act. The bill now heads to the President’s desk where he is expected to sign it immediately. Unlike its original counterpart, this bill is quite straightforward and to the point. Highlights of the modifications are listed in detail below.
There is now an extension of the 2-year maturity date and the 6-month deferral of principal and interest.
- This bill extends the original 2-year maturity of any portion of the PPP that is not forgiven to 5 years. This term period applies to loans made after the passage of this bill, HOWEVER, nothing in this bill or previous guidance appears to prohibit lenders and borrowers from mutually agreeing to modify the maturity term of a covered loan to be in conformity with this bill. If you already have a PPP loan, discuss with your lender the possibility of extending the payback period to five years.
- This bill modifies the deferral period for when principal, interest and fees on any amount not forgiven would become due. Previously, the repayment of the loan was deferred for only 6 months. The bill changes the deferral period so that principal, interest and fees will be deferred until forgiveness is determined by the SBA and remitted to the lender, thereby creating a longer deferral period for repayment.
- If a PPP loan recipient fails to apply for forgiveness within 10 months of the last day of the “covered period” then the deferral of principal, interest and fees will end on the last day of the 10-month period and the maturity of the note will begin.
There are several modifications to the “covered period” and uses of the loan proceeds that make it easier to qualify for forgiveness.
- The CARES Act originally stated the PPP loan proceeds must be used within a “covered period” of 8 weeks beginning on the date the loan proceeds were received by the borrower in order to qualify for forgiveness. This bill extends that period to 24 weeks OR December 31, 2020, whichever comes sooner. It should be noted that the 8-week period can remain in place at the borrower’s election, but it is not clear when the borrower must apply for forgiveness. It should also be noted that the $100,000 compensation limit still applies and that excess compensation would be excluded. The 8-week limit had been $15,385, but this new “covered period” SHOULD extend that compensation limit to $46,153 although that has not been specifically stated yet.
- Although never explicitly mentioned in the CARES Act, the SBA in their interim rule issued guidance that only 25% of the PPP funding could be used for “non-payroll costs,” such as rent, mortgage interest and utilities and any amount over that would not be forgiven. This bill raises that limit to 40%, HOWEVER, there is an important caveat, 60% MUST be used on payroll costs otherwise NONE of the loan will be forgiven. This all or nothing forgiveness was not the case with the 75%/25% limit. The Senate is well aware of this issue and a technical correction may be forthcoming, but be advised, as it stands now 60% MUST be used on payroll costs.
- This bill extends the period for restoring full-time equivalent employees (FTEs) and salaries. Originally that date was June 30, 2020, but has now been extended to December 31, 2020. If restoration occurs in this time frame an eligible borrower will NOT have a reduction in forgiveness as long as all other requirements have been satisfied.
- This bill also provides some additional relief for borrowers who have lost employees. You may recall that guidance was issued stating that if you offered to rehire the employee and they refused you could document this and not have your forgiveness reduced. While that still holds true, this bill expands that to state that if you are unable to hire similarly qualified employees for unfilled positions before December 31, 2020, or your business is unable to return to the same level of operations prior to February 15, 2020 due to compliance with government orders, then your forgiveness will NOT be reduced as long as this information is documented.
An amendment has been made to allow all businesses to defer the employer portion of Social Security taxes.
- Originally the CARES Act stated that an employer was only eligible to defer the employer portion of Social Security taxes if they had NOT received a PPP loan. Further guidance clarified this to state that a PPP recipient COULD defer these taxes, but only up until the loan was forgiven. This bill removes all of these restrictions and the employer is eligible to defer Social Security taxes through the end of 2020 regardless of whether they have a PPP loan OR if it’s forgiven.
It is important to note that this bill is an extension of the original CARES Act and is intended to supplement, not replace, the CARES Act. All other provisions of the CARES Act and subsequent guidance are still in effect.
It is also important to note that we are still awaiting additional guidance from the SBA on loan forgiveness in the form of a FAQ sheet. To date this guidance hasn’t been issued and many forgiveness questions still remain unanswered. We believe SBA and U.S. Treasury postponed the release of said guidance pending Congress’ action on this new bill. There is no timeline for when this guidance may be issued. All that being said, we are encouraging you, as business owners, not to panic. It is our expectation that with the extension to a 24-week period it may be some time before additional guidance is released, but it will be forthcoming. In our opinion, due to the extensions of time provided for this program it is not necessary to rush to apply for forgiveness and in fact, may be prudent to wait until we have more answers. It is our goal to offer a webinar on what we know about forgiveness in the upcoming weeks. Please stay tuned for an announcement about when that will be held.
Finally, a reminder that PPP funding IS STILL AVAILABLE. If, as a business owner, you have not applied due to the concerns over utilizing the money in an 8-week period, you now have longer to do so. Please contact your lending institution for more information. The deadline to apply still remains June 30, 2020.
We are always here to help! If you have any questions, please contact your DunlapSLK team member.