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Big Takeaways
The forgiveness qualifications have been relaxed and the terms of the loan for those that don't have forgiveness have been extended. If you were on the fence about taking the PPP then now's a good time to reconsider.
As some businesses come to the end of the 8 week period, it's a good time to start thinking about forgiveness. However, I don't recommend necessarily being first in line. Banks will need to work out the kinks and waiting might mean that more of the proceeds will be eligible for forgiveness.
There are still plenty of unanswered questions. Expect more clarification to come.
As some businesses are coming up on the 8 week covered period and looking to get their Paycheck Protection Program loan forgiven, we were given some (mostly) good news this week with the passing of the Paycheck Protection Act (H.R. 7010). The House voted 417-1 in favor and the Senate unanimously passed the House's bill. President Trump signed today. While we didn't get the rubber stamp for forgiveness that I and many others were hoping for, it's certainly close. Let's take a look at the high points.
Covered Period Extended from 8 Weeks to 24 Weeks
As a reminder, the covered period was the eight-week period in which businesses had to incur and pay payroll costs and other non-payroll costs such and rent and utilities in order to be eligible for forgiveness. Additionally, the clock started when the Paycheck Protection Program (PPP) funds hit your account. It's important to remember that when the CARES Act was signed into law 94 years ago on March 27, the thinking was the the country was going to be open by Easter. For some business, no problem. However, some businesses have yet to reopen or are doing so on a limited basis, especially in the hospitality industry. This provision extends the length of time a business can use the funds making it much easier to qualify for forgiveness. It should be noted that the 24 month period cannot extend beyond December 31, 2020. You may still use the 8-week period if you want. This might be an appealing option if you've already used the funds and you're going to be eligible for full forgiveness. You could apply for forgiveness and move on. Additionally, keep in mind that you must wait until at least 8 weeks have passed from your funding date to apply for forgiven.
Payroll Expenditure Requirement Relaxed from 75% to 60%*
Under the current rules, the amount that could be forgiven was reduced if the proceeds were used for less than 75% on payroll costs. Now, that number has been reduced to 60%, meaning up to 40% of the proceeds may be used for non-payroll costs like rent. But there's an asterisk. The new rules have it written as a cliff. Meaning, the business must use at least 60% of the proceeds on payroll to be eligible for any forgiveness. So, businesses are still playing the role of unemployment office for the government. There's discussion that this might get fixed later on and there's support from the likes of Senator Rubio as this wasn't the intention of the Act. Nevertheless, it's there until it isn't but this should provide some breathing room for those businesses that rely more on capital.
More Time to Restore Payroll - 24 Weeks Instead of 8 Weeks
Rather than having to have your payroll restored by June 30, the new Act extends the restoration date to December 31. This will provide a much needed longer runway for businesses that have yet to reopen or have but are not yet at full capacity.
Extended Loan Maturity on Unforgiven Amounts for New Borrowers
The intent and expectation of the PPP is that most businesses will have their loans completely forgiven. That's more likely under these new relaxed rules. However, for those that don't, the unforgiven amount becomes a low interest loan. The terms were 1% for two years, making this relatively cheap capital. For those that are granted funding after this Paycheck Protection Flexibility Act becomes law, so new borrowers, the terms have been extended to 5 years. Again, the intent it is to help nudge those that might have been on the fence about taking the funding. What about those businesses that have already taken PPP funding? The unforgiven loan portion remains unchanged at 2 years. However, the Act does state that this doesn't bar anyone from negotiating new terms with their lender. If these new relaxed rules don't result in full forgiveness then it's worth discussing with your lender.
Still Plenty of Unknowns
There are still plenty of questions and unknowns that businesses and practitioners would like cleared up. How does this affect the forgiveness calculation for Schedule C filing self-employeds? Because their forgiveness calculation is a rather straight-forward, mechanical calculation, it's possible that this new Act could effectively mean the SE's will get their entire PPP amount forgiven but we don't know for sure. With the extension from 8 to 24 weeks, we're not sure if businesses will have to wait the entire 24 week period to request forgiveness or if a request can be made earlier. The expenses paid with the forgiven PPP funds are currently not deductible and this Act didn't address that issue. Will that get cleared up at some point and if so, how? With this new Act, expect additional FAQs to come out that will (hopefully) provide further clarification.
It feels to me that the PPP is going to be the gift that keeps on giving all year round.
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