HF Issue Update: PPP Extension Signed into Law
June 11, 2020
As expected, on Friday June 5th President Trump signed into law the Paycheck Protection Flexibility Act (PPFA), which extends and expands the previous Paycheck Protection Program (PPP). Thus far the Small Business Administration (SBA) has worked with more than 5,000 lenders to approve 4.5 million loans totaling $510.2 billion of the program’s $659 billion in total lending authority as of May 30. HF reported on some of these changes last week after the bill passed the U.S. Senate, but provides below an expanded look at what is new and different.
What are the key changes?
- PPP recipients will now have 24 weeks, instead of 8 weeks, or a cut-off date of Dec. 31st - whichever comes first - to use the funds and reach full forgiveness.
- Borrowers can use the 24 week period to restore their workforce levels and wages, by December 31st, a change from the previous June 30th deadline.
- Previously businesses were required to spend at least 75% of the PPP loan on payroll for the loan to be forgiven, but now that requirement has been lowered to 60%. It is worth noting that this is now a cliff threshold for forgiveness, meaning that if 60% spent on payroll is not reached none of the loan will be forgiven.
- Businesses will not lose any loan forgiveness eligibility if they can show that employees declined to return to their jobs.
- Any amount not forgiven is required to be repaid over five years, instead of two years, and the interest rate remains at 1%.
- Businesses that receive a PPP loan can also delay payment of their payroll taxes, which was previously prohibited under the CARES Act.
- For new businesses intending to apply for the program a cutoff date of applications will remain June 30th.
How do I apply for forgiveness?
- Similar to the application process, we expect that each bank will have their own separate portal that businesses will use for the forgiveness process to accompany the SBA forgiveness application. Your banker should reach out with specific instructions.
- In addition to the bank’s online application, borrowers will need to complete and submit a Form 3508 PP Loan Forgiveness Application to their bank to apply for forgiveness. This application will require businesses to calculate payroll costs during the (now 24 week) covered period, calculate non-payroll costs, and arrive at a final forgiveness amount.
When do I apply for forgiveness?
- Before the changes from the Paycheck Protection Flexibility Act, business owners had six months to apply for forgiveness. This may be extended under the new Act. Once you file the forgiveness application, your bank has 60 days to review it and notify the Small Business Administration (SBA) of the amount of forgiveness. The SBA will have 90 days to approve the bank’s decision.
As always, anyone currently holding or considering the PPP should talk to their bank and accounting professions to make sure you understand all current rules and guidance.