Update: New PPP Legislation to Make Loan Forgiveness Easier
This week, the Senate and House passed a bill that will make it easier for borrowers to have Paycheck Protection Program (PPP) loans forgiven. The bill is pending executive approval; The Journal of Accountancy reports that the President is expected to sign it.
It can be quite a bit to unpack, so here are the major points you need to know about:
- Forgiveness Period Extended
The forgiveness period is extended from 8 weeks to 24 weeks after the loan is issued, or through December 31, 2020, whichever comes first. Borrowers have the full 24 weeks to incur and pay costs that can be included in loan forgiveness.
- New Safe Harbor Deadline
Borrowers who restore their workforce levels and wages to the pre-pandemic levels receive a safe harbor exemption from any forgiveness reduction penalties. This deadline has now shifted from June 30, 2020 to December 31, 2020.
- Application Deadline Extended
The bill extends the deadline to apply for a PPP loan from June 30, 2020 to December 31, 2020.
- Qualification Through Staffing Difficulties
Many companies are finding it difficult to return to pre-pandemic staffing levels. The new bill has provisions for them, and documentation of circumstances is key. Loan forgiveness qualification will apply to companies that
- Document their inability to rehire workers who were employed as of February 15, 2020; or
- Document their inability to find similarly qualified workers by the end of the year; or
- Document their inability to restore business operations to Feb. 15, 2020, levels due to COVID-19-related operating restrictions.
- Payroll Percentage Requirements Reduced
The current 75%/25% requirement of payroll to mortgage/rent/utilities expenses has been changed to 60%/40%.
BE AWARE: This rule has been modified to be all or nothing. If a borrower doesn’t spend at least 60% of their loan on payroll, none will be forgiven.
- New Light Shed on Deferral Policy
Borrowers can defer principal and interest payments on PPP loans until the SBA compensates lenders for forgiven amounts. Earlier guidance limited deferral to six-months. Borrowers who do not apply for forgiveness will have at least 10 months after the program expires to begin making payments.
- Loan Maturity Period Change
The new minimum period for a loan to mature is now five years following an application for loan forgiveness. This applies to PPP loans issued after the new bill. Borrowers and lenders may agree to extend current loans.
- Tax Payment Deferral Rule Repealed
The bill repeals a CARES Act provision that barred companies with forgiven PPP loans from deferring payroll tax payments.
These are the primary points of the updated legislation. Certainly, much of the news comes with a wave of relief for employers who have been struggling during the pandemic. But there’s no doubt many will still be seeking answers to more questions about this unique and complex time.
Information provided by Allevity Employer Solutions. Allevity provided a variety of HR & Payroll solutions. Serving Chico, Citrus Heights, Davis, Elk Grove, Fremont, Oakland, Rancho Cordova, Redding, Roseville, Sacramento, San Francisco, San Jose, Santa Rosa, Yuba City and all points in between.
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