On June 5, 2020, the President signed into law the Paycheck Protection Program (PPP) Flexibility Act. The Act is meant to add leniency and flexibility to the use of PPP loans by small businesses including updates to some of the requirements and deadlines. These changes have increased the potential for full loan forgiveness as well. Some of the more significant changes are summarized below:
- Borrowers now have 24 weeks to spend the funds on allowable purposes (instead of 8)
- Only 60% of the funds must be used for payroll expenses (previously 75%); the original CARES Act provided for prorated forgiveness if borrowers missed the 75% payroll mark. The new Act takes an “all or nothing approach” if borrowers do not reach the 60% threshold for payroll spending.
- Borrowers must restore their workforce to February 15th levels by December 31, 2020 (previously June 30, 2020); the Act adds 2 exceptions to this requirement – qualified employees cannot be found OR business revenue has not been restored to the February 15th level at December 31, 2020.
- Borrowers with PPP loans can defer the payment of employer FICA due through December 31, 2020. This provision was granted in the CARES Act, but PPP loan recipients could only defer payroll taxes until loan forgiveness was granted. This limitation has been removed.
- PPP loan funds that are not forgiven will now be due in 5 years (previously 2). The applicable interest rate is still 1%.
- Those with existing loans may elect to retain the 8-week covered period if they prefer.
- Payments of principal, interest, and fees on any loan amount remaining after forgiveness shall begin immediately after loan forgiveness is determined. This is a change from the previous 6-month payment deferral that was originally in the CARES Act.
The PPP Flexibility Act was created in response to the numerous business owners that could not meet the forgiveness criteria in the original 8-week window due primarily to government mandated closures. The new forgiveness leniency helps restore the original intent and goodwill of the Payroll Protection Program. Under the new guidelines, most borrowers should be able to achieve full forgiveness.
At GranthamPoole, we have a team of experts ready to help with your loan forgiveness questions. Count on us to see you through.
Stephanie B. Smith, CPA, CFF
Stephanie B. Smith is a member of GranthamPoole PLLC and a recognized leader in the fields of business valuation and litigation support. She has also written, taught, and spoken on many topics in the area over the years and has served as a technical advisor and testifying expert in numerous cases. Please contact Stephanie at ssmith@granthampoole.com or 601-499-2400. CPA License # 3657
***The above does not represent tax advice. Each situation is fact-dependent, and you should seek the advice of a competent advisor. GranthamPoole PLLC is a provider of tax, accounting, advisory and strategic services, partnering with clients across a broad spectrum of industries and sizes.