Dear business clients:
Congress recently passed the Paycheck Protection Flexibility Act, and President Trump is expected to sign it into law soon. This act provides needed flexibility and relaxation of the rules for PPP loan forgiveness. Here are the highlights:
- PPP borrowers can choose to extend the eight-week forgiveness period to 24 weeks, or they can keep the original eight-week period. And the deadline for spending the PPP funds is moved to December 31. This flexibility is designed to make it easier for more borrowers to reach a higher level of forgiveness.
- The requirement that 75% of PPP funds be spent on payroll drops to 60%, but is now a cliff. This means that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Previously, a borrower was required to reduce the amount eligible for forgiveness if less than 75% of eligible funds were used for payroll costs, but forgiveness wasn’t eliminated if the 75% threshold wasn’t met. Some congressmen have indicated this was not the intent, and 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 December 31, a change from the previous deadline of June 30.
- The act 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 act allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-19 related operating restrictions.
- Borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%.
- The act allows businesses that took a PPP loan to also delay payment of the employer’s 6.2% share of 2020 Social Security payroll taxes until 2021 and 2022, which was prohibited under the CARES Act.
- The deadline for applying for a PPP loan remains June 30.
Please contact us if you have questions or need assistance with your PPP loan forgiveness paperwork.
Van Bruggen & Vande Vegte, PC