The PPP loan program has been quite the roller coaster ride since it was implemented as part of the CARES Act. The PPP loan forgiveness rules continue to change, and we’ve been doing our best to keep up with the latest developments here on the Illumination Wealth Blog.
Now, PPP loan borrowers have gotten more information and leniency with the latest bill (H.R. 7010) signed in to law by the President. This bill is pretty concise and it focuses on 7 key provisions that dramatically impact PPP loans and how borrower forgiveness will be determined.
Let’s look at the 7 provisions featured within H.R. 7010:
Previously, borrowers were limited to a period of 8 weeks from receiving the loan funds. In this period, they had to use the funds to cover payroll costs and other approved business expenses in order to be eligible for full or partial PPP loan forgiveness. The bill allows for an extended 24-week period, which will give borrowers a lot more flexibility. More importantly, it will be easier for borrowers to qualify for full forgiveness.
NOTE: If you’ve already used all the funds for covered expenses within the original 8-week period, then you are still encouraged to apply for PPP loan forgiveness as soon as possible. If you have significant funds remaining or not all your funds were used for approved payroll costs, then you may want to considering taking advantage of this extension period.
The Small Business Administration (SBA) originally required at least 75% of the PPP loan amounts forgiven to be spend on payroll expenses. Otherwise, forgiveness would be reduced. The new bill changes this to 60%, with up to 40% able to be used for permitted rent, utilities and interest on secured debt. There is no Cliff at 60% as originally thought.
The original “amnesty rehire date” of June 30 has been pushed back to December 31, 2020. This means if you had to reduce your workforce or cut hours during the covered period, you would have up until the end of the year to rehire the equivalent workforce in order to avoid penalties or loan forgiveness reductions. They do not have to be the same employees and they don’t even have to have the same positions. It’s the amount of your rehired workforce that counts.
Because of the new provisions, businesses with PPP loans are not required to hire back the same employees and now they have more time to do so. This could mean workers stay laid off for longer and may still not have a job to come back to by the end of the year. Businesses will be able to take advantage of this new provision, but it could hurt some workers who were laid of or furloughed.
Employers can also apply for an exemption in loan forgiveness reduction if they are unable to rehire employees and replenish their staff. They must be able to prove that they offered to rehire previous employees in good faith. In addition, they must prove that they could not find enough qualified new employees to hire OR they could not return to full-scale business operations because of social distancing requirements or other Federal health regulations.
The new legislation also proposes that the repayment period for PPP loans would be extended from two (2) years up to five (5) years. This applies to loans still owed, minus any forgiveness granted to the borrower by the SBA and their lender. The interest rate for these loans will remain at 1%. This for all loans issued after June 5, 2020.
Lastly, the Bill states that borrowers will be eligible for the deferral of payment of the employer’s share of Social Security payroll taxes (6.2%). This is true whether or not the borrower receives any PPP loan forgiveness. The taxes can be deferred until 2021, when 50% of the taxes must be paid. The other half will be due in 2022.
These are the latest updates and provisions as enacted by the H.R. 7010 Bill. Of course, this is an ever-evolving situation as our economy continues to struggle and businesses find new ways to adapt to the COVID-19 situation. There will likely be even more provisions and PPP loan forgiveness rule changes, and perhaps more stimulus packages and PPP-type loan programs to help small businesses during a difficult economic period. Stay tuned to the Illumination Wealth Blog for the latest updates and information.
If your business needs guidance during these uncertain times, let the team at Illumination Wealth know how we can help. We work with many small business owners to provide financial advice and business planning services for COVID-19 and beyond. Contact us today to schedule a no-obligation introductory consultation.