Senate Passes Changes to PPP Loan Program: What you need to know

June 4, 2020 | George Wilmoth

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By George Wilmoth, CPA/PFS, CGMA, MST

On June 3, 2020, the Senate approved House Bill H.R. 7010 (“Flex Act”) to adjust provisions on the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) Loan Forgiveness. These changes could make loan forgiveness more attainable for certain business owners. 

The PPP was originally signed into law in March as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide loans to help small businesses make their payrolls during the Covid-19 pandemic. These loans also included a forgiveness provision, if certain factors were met. However, since launching on April 3rd, there has been conflicting guidance leaving borrowers with more questions than answers.

Here’s what you need to know about the new law related to forgiveness expected to be signed by President Trump today, June 4, 2020:

  1. Borrowers can extend the eight week covered period to 24 weeks or elect to maintain the eight week period. The extension allows significantly more time for business owners to use their PPP loan funds for payroll costs and other approved uses.
  2. The 75%  requirement for payroll related expenses is reduced to 60%.  While the previous guidance allowed for a sliding scale, the language of the Flex Act now creates a cliff. Borrowers need to spend 60% on payroll to be eligible for any loan forgiveness. To simplify, if a business owner receives a PPP for $100, they need to spend at least $60 on payroll to be eligible for forgiveness.
  3. Reduction in work force calculations are moved from June 30th to December 31st.  This includes the safe harbor rehiring provisions.
  4. Exceptions to hiring provision if (a) you could not or were unable to rehire individuals who were employees on February 15, 2020 and (b) were unable to hire similarly qualified employees for unfilled positions;  or (c) if your business was impacted by ordinances or other federal health guidance making the business unable to restore its activity to a comparable level of activity. 
  5. Repayment period for loans made after the enactment of the Flex Act will be five years with 1% interest, instead of two years as outlined in previously released Treasury Department guidance. For borrowers who have already received PPP loans, it is at the discretion of their bank if they can receive the same adjustments. It may be beneficial for borrowers to begin these discussions with their banks as soon as possible.
  6. A new key provision is that an employer can defer the employer’s share of payroll taxes regardless of whether the borrower receives a PPP loan and obtains forgiveness.
  7. The deadline to apply for a PPP loan remains June 30, 2020 based upon a letter added to the Congressional Record submitted by the US Senate, clarifying congressional intent.

If signed by the President, this law will provide much needed clarity and relief to small business owners. Certain questions remain, including whether the sliding scale of forgiveness based on 60% use of loan funds for payroll costs will be included in Treasury Department guidance as contemplated by certain US senators. Regardless, the law could increase the likelihood of borrowers receiving forgiveness. Please stay tuned for additional guidance as more details become available.

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