Major Change to PPP Passed Into Law

/ Freidel & Associates, LLC/

If your business has received a Paycheck Protection Program loan, you must be aware that Congress has enacted major changes to the program. If you are starting to pull together your loan forgiveness application - put that to the side for now, as major changes to these calculations have been made.

Key points to the law include:

  1. The forgiveness period is extended from 8 weeks to 24 weeks. For many businesses that have reopened, this means their loans will be forgiven in full.

  2. Loan maturities have been extended from a maximum of two years, to a minimum of five years. However, this change in maturity only applies to loans after June 5th, or loans where the lender agrees with you to extend the term. This maturity change only matters if a portion of your PPP loan is not forgiven.

  3. There is a new requirement that 60% of the loan amount must be spent on payroll costs. For most businesses that are reopened, this requirement should not be an issue due to the expanded 24 month period.

  4. The requirement that 75% of the forgivable spending be spent on payroll has been loosened to the 60% standard.

  5. If you restore certain headcount measurements by December 31, 2020 (previously June 30th), you can avoid loan forgiveness “haircuts”

  6. There is expanded relief for businesses that are able to document an inability to rehire employees that were employees as of February 15, 2020, or to hire similarly qualified employees for unfilled positions as of December 31, 2020

  7. There is also relief if a business is able to document an inability to return to the same level of business activity as of February 15, 2020 due to CDC, OSHA, or other governmental standards for sanitation, social distancing, etc.

  8. Businesses that claimed the PPP can also claim a deferral of certain federal payroll taxes for wages paid after 3/27/2020 and before 1/1/2021. This could allow you to defer half of the relevant payroll taxes until 12/31/2021, and the other half until 12/31/2022.

There are a number of hidden wrinkles in this law. Most notably – some businesses with reduced business levels may have a mathematically worse result using the 24 week period, since you will use the 24 week period to calculate headcount levels and possible “haircuts” to loan forgiveness. However, there is an option to elect the old 8 week period, so many businesses will need to compare results under both methods.

You may also need to wait until the end of 2020 to sort all this out, since there are also headcount measurements at year-end 2020 that also impact the calculations. We are also awaiting more guidance in regulations to hopefully clarify a number of open points.