In June, major changes to the Payment Protection Program were introduced via the PPP Flexibility Act.
These updates affect both new borrowers and small businesses who have already received their funds.
What does it mean for you?
You have more time to spend your funds, but that may not be good for some businesses.
Borrowers are now able to spend their PPP loans until December 31, 2020 or 24 weeks after funds were received, whichever comes earlier.
This is a great increase from the original eight-week covered period.
If you received a loan before the PPPFA was signed, you can elect to keep your original eight-week covered period. This might be a good option, because you will likely be required to maintain certain employment and salary levels through the extended 24 weeks.
You don’t have to spend 75% of your loan on payroll.
The original PPP guidelines stated that 75% of funds must be spent on payroll costs in order for the loan to be forgiven.
That’s changed under the Flexibility Act; only 60% must be spent on payroll costs.
40% of loans can be spent on mortgage interest, rent, or utility payments.
The repayment period has been extended, but only for some borrowers.
Businesses now have five years to repay any unforgiven funds from their PPP loan, up from the original two year deadline.
Unfortunately, this change will not be applied retroactively. If you received a PPP loan prior to June 5, 2020, your loan is still set to mature in two years. You can, however, request your lender extend the term of the loan.
Luckily, the interest rate remains at 1% in any case.
You have more time to apply for forgiveness.
Borrowers now have ten months after their covered period to apply for forgiveness.
If you elected to keep an eight-week covered period, you have ten months after those eight weeks to apply. Likewise, if you have a 24-week covered period (or a covered period that ends on December 31), you have ten months after that date to apply.
Mark this date on your calendar now. If you fail to apply for forgiveness within that 10 month period, you will be required to repay the loan in full.
You can defer a portion of Social Security taxes.
The PPPFA also allows all employers to defer Social Security taxes, with 50% of the amount being due December 31, 2021 and the other 50% being due December 31, 2022.
This is a strike to part of the CARES Act, which prohibited tax deferral after the PPP loan was forgiven.
Overall, while the PPPFA still leaves room for improvement, these changes should benefit many borrowers.
Some business owners are still frustrated by the limitations on their loans.
As the circumstances surrounding the pandemic continue to change, we can expect legislation and relief programs to change as well.
For now, we recommend being vigilant about keeping a paper trail for your funds, following the forgiveness requirements, and marking your calendars today for any deadlines.
The window for applications is closing fast. Contact us if you need help.
The deadline for applying for a PPP loan is June 30th, 2020.
If you need help applying, fill out the form below to get in touch.