June 4, 2020

Congress Makes Favorable Changes to PPP Loans

The House originated it, the Senate approved it and the President signed it: Favorable Changes to PPP Loans. The Paycheck Protection Program has been modified to the point that any smart and viable business will get their entire loan forgiven (which they would have anyway if they read our blog post on avoiding loan forgiveness pitfalls). Why? The legislation known as the Paycheck Protection Flexibility Act extends the 8-week covered period to 24 weeks AND it lowers the threshold of the funds required to be spent on payroll from 75% to 60%.

Other important changes include:

  • Current borrowers can choose the 8-week or 24-week covered period, which could impact when you need to restore your workforce
    • DARK HORSE OBSERVATION: There may be a number of cases where businesses choose to stay with the 8-week covered period if they are planning to reduce their workforce after the end of June. If you choose the 24-week period, you will have to keep those employees employed for longer than your business needs might require. Alternatively, with the 24-week period, you’ll have a lot more time (Dec 31st to be exact) to rehire those that are currently sitting on the sideline. Consult with a Dark Horse CPA to see which route makes the most sense for your business.
  • If you spend less than 60% of your PPP funds on payroll, NONE OF THE LOAN WILL BE FORGIVEN. There is no partial reductions here, so you have to stay above 60% or you will be in a world of hurt.
    • DARK HORSE OBSERVATION: Don’t mess around on this one. Make sure you’re above this threshold. If you’re not sure how exactly to determine this, reach out.
  • If you cannot find qualified employees to replace those who were laid off, your loan forgiveness will not be reduced.
  • If you cannot restore business operations to Feb 15, 2020 levels due to COVID-19 related operating restrictions, your loan forgiveness will be granted in full.
  • New borrowers, and potentially existing borrowers, will have 5 years to pay back any loan balance not forgiven. If you end up with a loan balance, it will behoove you to negotiate this with your bank so you have longer to repay the loan.
  • PPP loan recipients can now delay payment of payroll taxes like their non-PPP counterparts. Half of any payroll taxes deferred are due 12/31/21 and the other half is due 12/31/22 and there is no interest on that deferral.

The time to evaluate these favorable changes to PPP loans and what you need to do in light of the changes is NOW since we are all somewhere in the middle or end of our 8-week covered periods. The full text of the bill can be found here.

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