Finance & Career
The United States Senate passed on June 3 the House of Representatives version of the Paycheck Protection Program (PPP) legislation to triple the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for loan forgiveness.
PPP funds, a part of the Coronavirus Aid, Relief, and Economic Security Act (CARES), are available to small businesses that were in operation on February 15, 2020, with 500 or fewer employees. Included are tax-exempt not-for-profits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors.
June 30, 2020, remains the deadline for applying to receive a PPP loan. The bill moves the June 30, 2020, deadline for spending the PPP funds to December 31, 2020, to accommodate the new 24-week window.
The following is a summary of the legislation’s main points compiled by the American Institute of Certified Public Accountants (AICPA):
- Current PPP borrowers can choose to extend the 8-week period to 24 weeks, or they can keep the original 8-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond December 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 percent from 75 percent but is now a cliff, meaning that borrowers must spend at least 60 percent 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 percent of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75 percent threshold isn’t met. Representative Chip Roy of (Texas), who cosponsored the bill in the House, said that the bill intended the sliding scale to remain in effect at 60 percent. (The Small Business Administration will provide guidance on the sliding scale in the coming days)
- Borrowers can use the 24-week period to restore their workforce levels and wages to the prepandemic levels required for full forgiveness. This must be done by December 31, 2020, which is a change from the previous deadline of June 30, 2020.
- 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 February 15, 2020, levels due to COVID-19–related operating restrictions.
- New borrowers now have 5 years to repay the loan instead of 2 years. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1 percent.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
The Small Business Administration will release more administrative guidelines in the coming days.