To help small businesses during the COVID-19 public emergency, Congress established the Paycheck Protection Program (PPP) as part of the Coronavirus Aid, Relief, and Economic Security Act, better known as the CARES Act, and began disbursing loans to small businesses at the beginning of April. Borrowers that received PPP loans in the first round of disbursements are now at the end of their 8-week covered period, and much-awaited guidance has finally been published by the U.S. Treasury; the rules have changed. Congress passed the Paycheck Protection Program Flexibility Act (PPPFA) of 2020 (H.R. 7010) on June 3, 2020, and the President signed the bill into law on June 5, 2020. The Bill has major changes to key aspects of the Paycheck Protection Program created under the CARES Act and now gives borrowers that first received their loans in April a tough choice to make.
What Are The Changes To The PPP?
1. Current PPP borrowers can choose to extend the 8-week covered period to 24-week covered period, or they can keep the original 8-week covered period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond December 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
2. The amount of funds that must now be spent on payroll costs has been reduced from 75% to 60%. Legal experts indicate the language of this change in the law is now a ‘cliff’, meaning that borrowers must spend at least 60% on payroll costs or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met. It is unclear if this was the intention of Congress and a technical correction or guidance could correct the language of the law to eliminate the ‘cliff’ but as it stands now 60% must be spent on payroll if the borrower expects to receive forgiveness. Of course, more than 60% of the loan can be spent on payroll costs.
4. The FTE Reduction Safe Harbor & Wage Reduction Safe Harbor measurement dates have been extended by 6 months. Borrowers now have until December 31, 2020 to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. The previous deadline was June 30, 2020.
5. There are two new exceptions in the calculation of loan forgiveness. Borrowers can now exclude any workforce reduction/FTE reduction during the period of February 15, 2020 – December 31, 2020 if an employer, in good faith, is able to substantiate the following:
- An inability to rehire individuals employed on February 15, 2020 and an inability to hire similarly qualified employees to fill open positions on or before December 31, 2020; or
- An inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with COVID—19 requirements which were established to require standards for sanitation, social distancing, or any other worker or customer safety requirement during the period beginning on March 1, 2020, and ending December 31, 2020.
6. New borrowers now have five years to repay the loan instead of two. There is nothing in the legislation that prohibits existing PPP loans from being extended to 5 years if the lender and borrower mutually agree. The interest rate remains at 1%.
7. Borrowers are now able to delay payment of the employer portion of social security tax, which was prohibited under the CARES Act. RSI can begin to defer payment of employer social security tax immediately if your business would like to take advantage of this benefit. Be sure to visit RSI’s Covid-19 Restaurant Resources to watch the webinar INSIDE THE CARES ACT – which covers the Delay of Employer Social Security Tax.
8. Businesses now have up to 10 months from the end of their covered period to apply for Forgiveness without having to make any payments.
The U.S. Treasury is now tasked with creating new guidance and FAQs for borrowers and lenders as well as creating a new PPP Forgiveness Application. The calculations are going to change. The safe harbors are going to change. And borrowers are again forced to wait for guidance and a new Forgiveness Application before being able to fully understand the new process. RSI’s Compliance Department is closely monitoring the U.S. Treasury for updates so please reach out to firstname.lastname@example.org if you have any questions.