Yesterday the Senate passed the PPP modifications that the House passed last week. Due to the overwhelming bipartisan support, the modifications are expected to be signed by the President. Below is a summary of the changes to the program. These modifications to the program require a new strategy but provide significant flexibility for a business to reopen and rehire employees as appropriate and still be able to obtain forgiveness. It is very important to know that this will require a new round of guidance to be issued by the Treasury and SBA but provides time for them to issue updated information we will need.
Direct changes to the PPP loan program, if signed by President Trump:
1) 8-week covered period extended to 24 weeks
This is awesome news, particularly for those businesses that have been closed due to the coronavirus. This extension allows additional time to spend the PPP Loan Proceeds for payroll.
The loan application was based on 2.5 months, approximately 11 weeks, of payroll and you now have 24 weeks to spend it. This eliminates most of the challenges of the program and allows employees to be rehired when the business is ready.
2) 75% rule for covered payroll expenses reduced to 60%, which increases covered nonpayroll expenses such as rent and utilities from 25% to 40%.
Due to the extended 24-week covered period, this should make it easier to obtain loan forgiveness. We recommend trying to spend 100% of the loan amount on payroll over the 24 weeks as that will make the application process easier if you only need to attach payroll reports. However, if you spend less than 60% of the loan on payroll, you will have $0 forgiveness which is a drastic change from the previous 75% rule. This makes the tracking of expenses during the 24-week important to ensure you are getting the maximum amount of the loan qualifying for forgiveness.
3) Rehire date moved from June 30, 2020 to December 31, 2020
Your business now has until December 31, 2020 to rehire employees back to the February 15, 2020 level needed for loan forgiveness.
4) Required Full-Time Equivalent goal for the rehire exemption is reduced if you are unable to rehire people, or business has declined due to HHS, CDC, or OSHA requirements regarding COVID-19
Continue to plan on rehiring people by December 31, 2020. However, if guidelines are issued that restrict the number of people you may have in the office, this should give the business flexibility in adjusting staffing levels to a new normal. This exception is new, and we will need new guidance to clarify it.
5) New PPP loans will have a minimum maturity of 5 years
The goal of the program has shifted back to trying to get 100% forgiveness. However, if you do not obtain this, we believe you will need to contact your bank to modify the terms to the allowable 5 years. We recommend trying to avoid doing this unless absolutely necessary.
Indirect changes to the PPP loan program:
- We still don’t know about:
- payments to related parties
- miscellaneous other payments, but they may not matter
- We assume the $15,385 per person payroll limit will be increased to $46,154, but need confirmation from the SBA
- The original forgiveness application will require revisions
- The PPP Expense Tracker spreadsheet will require updates for the revisions
- Although utilities, health insurance, SUTA, and other small costs are still eligible, they become less important. Rather than worry about tracking small receipts, we are recommending focusing on the big items of payroll and rent that are easy to show to the banks that review the forgiveness application.
- Due to the December 31, 2020 rehire date, businesses typically will not be filing forgiveness applications until January 2021, at the earliest.
We will continue to monitor this ever-changing situation, and pass along information to you as it becomes available.