PPP Flexibility Act, Forgiveness Rules Change

By Paul Manger

June 12, 2020

PPP Flexibility Act, Forgiveness Rules Change

On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act, or the PPP Flexibility Act (PPPFA), into law. The rule changes include extensions on deadlines and payroll requirement changes that impact loan forgiveness. These changes to the PPP (Paycheck Protection Program) loosen restrictions on forgiveness for borrowers.

Briefly Catch Up on the PPP

In April 2020, the PPP was set up to lend funds to business owners via the Small Business Administration (SBA). The program focuses on keeping employees on the payroll, but a portion could also apply to other business-related expenses. The PPP’s initial $349 billion ran out much faster than expected, and by April 23, 2020, an additional $310 billion was made available to the PPP.

Additional PPP Details

Small business owners, independent contractors, sole proprietorships, and self-employed individuals can potentially qualify for a PPP loan. These loans are forgivable as long as you follow some key rules, some of which changed via the recent legislation in the PPP Flexibility Act. A personal or business credit check is not required to apply. You can learn more about the PPP in our article, The PPP: The Paycheck Protection Program.

The PPP Flexibility Act

Previously, to qualify for full loan forgiveness, borrowers had to use 75% of PPP funds for payroll costs and no more than 25% for utilities, mortgage, and rent. The PPP Flexibility Act makes changes to this requirement which we will cover soon. Below you’ll find a list of what qualifies as a payroll cost or non-payroll costs.

Payroll costs include:

  • Salary, wages, commissions, or tips. There is a $100,000 cap on a per-year basis for each employee.
  • Taxes on the local and state level assessed on the compensation.
  • Any costs that relate to maintaining group health care benefits during times of medical or family leave, paid sick leave, and insurance premiums.

Other non-payroll costs include:

  • Mortgage or other debt payments on interest, but not on payments of principal.
  • Rent
  • Utilities

The PPP Flexibility Act changes the rules for borrowers from 75% to 60%. Requiring instead, borrowers can use 60% of funds for payroll costs and still be eligible for full loan forgiveness. The Treasury Department and SBA clarified on Monday, June 8, 2020, that business owners who spend less than 60% of the funding on payroll costs will still have eligibility for partial loan forgiveness.

Covered Period & Application Period Extensions

The initial PPP had a requirement to spend funds within an eight-week covered period beginning on the date of disbursement. The PPP Flexibility Act extends that period to 24 weeks. Under the PPP Flexibility Act, the period to submit your application for forgiveness was also extended to 10 months after the covered period concludes.

The PPP Flexibility Act Extends the Rehiring Window

One of the most critical points of the PPP was maintaining as many employees on payrolls as possible. The PPP included requirements that if a business owner got funding and let some employees go during the covered period, then a proportionate amount of the funding would no longer be eligible for forgiveness. However, if the employer rehires those employees by June 30, 2020, they will still receive full forgiveness.

The PPP Flexibility Act extends that deadline from June 30, 2020, to December 31, 2020. The act also includes two additional exemptions from this rule, allowing borrowers to handle unfilled positions as if the positions were filled by the December deadline.

  • Borrowers must prove their inability to hire the same employee or similar employee, that was previously in the role as of February 15, 2020.
  • If a borrower is unable to generate the same business activity as they had before February 15, 2020, due to COVID-related orders or guidance issued by the CDC, HHS, or OSHA between March 1, 2020, and December 31, 2020.

Additional Time to Repay the Loan

For loans approved on or after June 5, 2020, borrowers get five years to repay their PPP loan. Under the original PPP, borrowers had two years at an interest rate of 1%.

Time is Running out to Apply for the PPP

June 30, 2020, is the final day for PPP loan approval, so act fast if you’re planning to apply. Modern Wealth Management knows these are trying times, and we are here to help. If you need help, or maybe just pointed in the correct direction when it comes to applying for the PPP, reach out to us. You can schedule a complimentary consultation below or give us a call at 913-393-1000.

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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.