Update to PPP Loan Program Gives Businesses More Flexibility
A new law relaxes rules regarding loan forgiveness and repayment for companies getting aid during the pandemic
On Friday, June 5, President Trump signed into law the Paycheck Protection Program Flexibility Act, which was approved by the Senate earlier in the week.
As part of the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act signed in March, $377 billion was allocated for small businesses, including $349 billion to the Paycheck Protection Program (PPP). Additional funding in April added $310 billion more for PPP loans. The updates should make the terms and conditions for loan forgiveness and repayment more flexible for small-business owners.
“The bill is mostly very good in that it gives businesses a lot more flexibility and clarity on how they can spend the funds,” says Benjamin R. Sargent, a certified public accountant in Aquebogue, New York. “As of now there’s still about $100 billion available. No new funds have been added.”
As part of the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act signed in March, $377 billion was allocated for small businesses, including $349 billion to the Paycheck Protection Program (PPP). Additional funding in April added $310 billion more for PPP loans. The updates should make the terms and conditions for loan forgiveness and repayment more flexible for small-business owners.
“The bill is mostly very good in that it gives businesses a lot more flexibility and clarity on how they can spend the funds,” says Benjamin R. Sargent, a certified public accountant in Aquebogue, New York. “As of now there’s still about $100 billion available. No new funds have been added.”
- Exemption from penalty for not maintaining pre-COVID head counts. In order to receive this exemption, a business must document its inability to rehire as a result of social distancing rules or any other worker or customer safety requirements related to COVID-19.
- Ten months from the last day of the covered period to apply for loan forgiveness. The new act also defers principal payments, interest and fees until the final forgiveness decision is made by your lender and the Small Business Administration. These issues had not been addressed in the original act.
“While it was clearly the intent of the drafters of the legislation to make the forgiveness of the PPP loans a nontaxable event, the IRS has determined that expenses paid with the tax-exempt funds are nondeductible, which effectively makes the PPP funds taxable for most businesses,” Sargent says. “We had hoped this would be addressed in this legislation, but it didn’t make it into the bill that was passed.”
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More for Pros on Houzz
Watch the Houzz webinar that covers the CARES Act and stimulus
Read stories in our Resilience series
Learn about Houzz Pro software
Talk with your peers in the Pro-to-Pro discussions
Join the Houzz Trade Program
- Deadline extended from eight weeks to 24 weeks. The deadline to use a PPP loan has been extended to as late as Dec. 31, 2020, from a prior deadline of June 30, 2020. “Any business that received funds before the new bill has the option to use the new 24-week period or the old eight-week period,” Sargent says. The eight- or 24-week countdown to the date by which a loan must be used starts on the day the loan is received.
- New 60/40 rule. The proportion of the loan that businesses must spend on payroll to be eligible for full forgiveness has been lowered. Now, 60% of PPP funds must be spent on payroll costs such as salaries and benefits. The other 40% can be spent on mortgage, rent and other allowable expenses. The previous expense ratio for forgiveness was 75/25.
“For businesses that are functioning at less capacity or that have very high rents, this meant they were artificially spending more on payroll to try to meet that target,” Sargent says. “The 60/40 split offers more flexibility for businesses with higher rents and lower payroll.”