Last week the House passed the PPFA. The Senate passed it today. President Trump is expected to sign it immediately. We expect the SBA and Treasury will update regulations soon thereafter.
The PPFA does two important things. First, it increases the time a business can use PPP funds and receive loan forgiveness from eight weeks to twenty-four weeks. Second, it reduces the amount an employer must on payroll costs from 75 percent to 60 percent.
Forgiveness Period Extended to 24 Weeks
Initially, a business had eight weeks to use PPP loan funds. Provided the funds were used for a qualifying purpose within this covered period, the loan would be forgiven. Under the PPFA, the eight-week period was extended to 24 weeks or December 31, 2020, whichever is first. Funds used for a qualifying purposes within the covered period are eligible for forgiveness.
Many businesses were unable to use the PPP funds because of a very closed economy. The expansion of time will provide businesses greater flexibility and opportunity to effectively use the funds.
Reduced Payroll Cost Requirement
Under the PPFA, Congress reduced the amount a business must spend on payroll costs from 75 percent to 60 percent. This means that 40 percent of PPP funds can be used for rent, mortgage interest and utilities. This will make it easier for employers to meet loan forgiveness requirements.
Current SBA Guidance states that 75 percent of “the forgiveness request” must be for payroll costs meaning that the SBA looked only at the amount a business requested to be forgiven. The PPFA now suggests a business is entitled to loan forgiveness only if it uses 60 percent of the loan amount on payroll costs. If 60 percent is not used for payroll costs, forgiveness does not currently appear possible.
Bringing Back Workers
The PPP reduces the amount eligible for forgiveness if a business does not bring back the same number of employees that it had before COVID-19. The PPFA gives a business until December 31, 2020 to restore the workforce. A business may also be excused from bringing back workers if it documents that a worker rejected an offer to return or if a health or safety requirement related to COVID-19 restricted their business.
Conclusion
Businesses should take advantage of these relaxed rules to better use the PPP funds. These relaxed rules allow a business to take longer to spend the fund and use less for payroll costs. A business must, however, use at least 60 percent of its PPP funds before it will receive any forgiveness.
Doug Larsen can be contacted at [email protected] or 559.256.5000