PPP Flexibility Act of 2020 (PPPFA)

The Paycheck Protection Program Flexibility Act (PPFA) of 2020, was signed into law on June 5, 2020, providing more flexibility and information to small businesses than the original Paycheck Protection Program (PPP).

3 Things You Need to Know About the PPP Loan Forgiveness

1. Loans can be up to 100% forgivable if spent on covered costs and employment and wage levels are maintained over an eight-week “covered period”.

PRO Tip… Determine whether your organization has maintained adequate levels of employment and wage payments to meet requirements. If you have wage reductions, consider whether you can restore them before the end of your covered period or plan to do so by December 31 (if they occurred between Feb 15 and April 26)

2. Payroll costs include wages, health, retirement, state/local taxes, and other costs.

PRO Tip… Payroll costs exclude cash compensation (prorated) over $100,000 per employee, workers compensation premiums, payments to independent contractors, and employer-paid federal taxes.

The percentage of loan proceeds that must be spent on payroll costs is 60 percent (PPP originally had it set at 75%).

3. Eligible uses of the PPP other than payroll costs include:

  • Costs related to continuing group health care benefits
  • Payments of interest on any mortgage obligation (though you can include any prepayment of or payment of principal)
  • Rent (including rent under a lease agreement)
  • Utilities (electric, gas, water, transportation, telephone, and internet access)
  • Interest on any other debt obligations that were incurred before the covered period

PRO Tip… All must have been existing obligations prior to February 15,2020. The non-payroll portion of a forgivable covered loan is 40% with the passing of PPFA (PPP originally had it set at 25%).

PPFA Extends Time Allowed for Businesses to Spend PPP Loan Proceeds

While the original Paycheck Protection Program (PPP) law set a 2-year term, the new PPFA law extended it a 5-year term for a paycheck protection loan with a remaining balance after forgiveness.

It also extends the covered period during which a loan recipient may use such funds for certain expenses while remaining eligible for forgiveness. It gives employers 24 weeks, rather than eight weeks to spend PPP proceeds.

3 Tax Notes About the PPP and PPFA

  1. No Interest and Not Taxable Income: Businesses do not need to pay interest on PPP loan amounts forgiven, and forgiven amounts are not considered federal taxable income to the business.
  2. Social Security Tax Deferrals for PPP Loan Forgiveness Recipients: The PPPFA allows employers that receive PPP loan forgiveness to continue deferring payment of the employer share of the Social Security tax through December 31, 2020. Deferred employer Social Security tax amounts will be due in two equal payments in December 2021 and 2022. PRO Tip… Employers pay 6.2% in social security taxes on the first $137,700 of employee wages in 2020.
  3. Not all Taxes are Categorized as Payroll Costs: While state and local taxes are considered part of payroll costs, eligible for PPP forgiveness, federal taxes are not.

Employer Grace Period for Recovery is Extended

PPFA extends the period in which an employer may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a PPP loan. The wage and employment level safe-harbors, permits employers to avoid a reduction in forgiveness amounts due to a significant decrease in employment and/or wage levels between February 15 and April 26, 2020, as long as the number of employees and wage levels are restored by December 31, 2020 (the original PPP deadline was June 30).

The PPPFA also clarifies that loan forgiveness will not be reduced based on an inability to rehire employees if the employer can document;

  1. written offers to rehire individuals who were employees of the organization on February 15, 2020; or
  2. an inability to hire similarly qualified employees for unfilled positions by December 31, 2020.

Additionally, forgiveness will not be reduced for failure to maintain employment levels if the organization is able to document an inability to return to the same level of business activity as existed prior to February 15, 2020, due to compliance with COVID-19-related guidance from the Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA) between March 1 and December 31, 2020.

PPP Loan Recipients Received Prior to June 5

Employers that received PPP loans prior to June 5, 2020 may elect to retain the original eight-week covered period to spend loan proceeds. Those that prefer to use the longer period of up to 24 weeks may need to demonstrate compliance with the requirements to maintain employment levels through the entire 24-week period or to restore wage and full-time equivalent employee levels by December 31, 2020.

Deferral and Extension of Time for Loan Repayments

Loan recipients can defer principal and interest payments on any portion of PPP loans that is not forgiven. The PPPFA extends the deferral period from 6 months to the time when the SBA compensates the lender for forgiven amounts, except that repayments can be required if the borrower has not applied for forgiveness within 10 months of the expiration of the borrower’s covered period.

PPFA Extends the Term of PPP Loans

The original PPP loan had a term set at two years; PPFA changed the loan term to five years.

PPP Loan Forgiveness Application

Have you applied for PPP Loan Forgiveness yet? If not we’d recommend you do this soon; here is the PPP Loan Forgiveness Application Link.

PPP Loan Application Deadline

The PPP Loan deadline is June 30, 2020PPP Loan Application Link

Noteworthy eligibility factors for the PPP include:

  1. While most businesses must have 500 or fewer employees, the 500-employee exception for hospitality/food service by physical location; certain franchises may also qualify as a separate business.
  2. Business must have been operating with employees on February 15, 2020.

PPP Loan Calculation
PPP Loan Amounts = 250% of average monthly payroll costs from 12-month look-back, up to $10 million

Economic Injury Disaster Loan (EIDL) is Available

On June 15th, the Small Business Administration (SBA) announced that it has reopened to allow all small businesses to apply for the EIDL. There is a cap on how much they can loan out so we would recommend applying for this loan ASAP! EIDL Loan Application Link

Wondering What Loans or Grants Are Best for You?

Our PROs can help you calculate and evaluate your options to determine what makes most financial sense in the short and long-term as well as develop various what-if analysis. Schedule time with our PROs.