By Attorney Kelly Jesson
Amendments to the Payroll Protection Program (“PPP”) that have been discussed for weeks finally made it to law on Friday. The amendment makes six major changes:
1) Forgiveness period possibly extended: The definition of “covered period” has changed to give businesses the option of choosing the eight-week period, or the earlier of 24 weeks or through December 31, 2020. This enables businesses to have more time to spend PPP money on forgivable expenses, thus increasing the likelihood that the entire loan may be forgivable. However, there’s a catch: because the “covered period” has extended, the business owner needs to maintain payroll levels appropriately under the CARES Act during the extended period in order to obtain full forgiveness. Thus, some business owners may opt to keep the shorter 8-week period.
2) Businesses need only spend 60% of the loan on allowable payroll expenses: This is a decrease from 75%, which is not in the CARES Act but was made a rule by the Treasury Department. It obviously has a negative effect on businesses that have large rental or mortgage expenses. Now, they can use 40%, instead of 25%, on rent, mortgage, and utilities
and still have that part forgiven.
3) New PPP loans allowed to be paid off within five years: This is an increase from two years. While this only applies to new loans, existing lenders may allow existing borrowers to take advantage of this term as well.
4) Businesses may not be penalized if they cannot rehire workers or resume business during the covered period: As mentioned above, the amount of forgiveness depends on a business’s ability to pay covered expenses (60% has to be payroll) and re-hire or maintain its workforce. What if it CANNOT reopen due to mandatory closures? The PPP amendment exempts businesses from being negatively affected by these requirements if the business in good faith
documents: (1) both the inability to rehire individuals who were employees on February 15, 2020 and the inability to hire similarly qualified employees for unfilled positions by December 31, 2020; or (2) the inability to return to the same level of business activity it enjoyed before February 15, 2020, due to compliance with government closures or federal safety and sanitation requirements related to COVID-19.
5) Repayment deferral period has been extended: Instead of it being deferred for six months, the amendment defers repayment until the date the amount of forgiveness determined is remitted to the lender. This is beneficial because business owners won’t have to start repaying the loan without knowing how much they actually have to repay (makes sense, right?). However, if a borrower fails to apply for forgiveness within 10 months of the last day of the covered period, repayment must begin on that date (10 months after the last day of the covered period).
6) Payment of employer payroll taxes delayed: Businesses can delay the payment of employer payroll taxes until December 31, 2021 (up to 50% of the amount due) and December 31, 2022 (the remaining amount due). Prior to this amendment, businesses were prohibited from taking advantage of this benefit if its PPP loan was forgiven in whole or in part.
These changes are certainly welcome to business owners. Keep in mind, though, the Treasury Department and Small Business Administration still have the ability to provide further rules and regulations, so business owners should keep their eyes and ears open in order to fully take advantage of the PPP! Please contact Jesson & Rains with any questions!
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