The US House of Representatives and Senate have passed the PPP Flexibility Act. Here are the highlights covered by AICPA.

The deadline moved to December 31

Which means the availability to obtain PPP loans, if you have not yet applied, extends out to December 31. Most significant for those who already have their PPP loans, this most likely extends the deadline for reversing reductions in employee head counts or reductions in employee pay rates.

This was lobbied for when the President met with the CEOs of some large restaurateurs a few weeks ago.

Longer, 24 week spending window

This one is big! Many borrowers were finding it difficult to spend all of the PPP Loan proceeds within the original “8 week forgiveness window.” The Act extends that window out to 24 weeks. Thank You Very Much!

This not only makes it much easier to have the entire loan forgiven, more importantly it allows for much wiser planning and use of the PPP Loan proceeds.

Albeit we are way into the game of spending the money, and it sure would have been nice to have this from the beginning, but it makes it easier to not make any drastic decisions in the next few weeks. 

More money for rent, utilities, and interest

Well, not really more money, the Act simply allows you to spend a higher percentage on non-payroll costs. The percentage jumps from 25% to 40%. Again, allowing better planning opportunities and more flexibility on spending the money in a way that makes sense for the business.

The payroll expenditure requirement drops to 60% from 75% but is now a cliff.

Meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven.

Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met.  Rep. Chip Roy (Texas), who co-sponsored the bill in the House, said in a House speech that the bill intended the sliding scale to remain in effect at 60%. Senators Marco Rubio and Susan Collins indicated that technical tweaks could be made to the bill to restore the sliding scale.

Worst-case scenario addressed

The Act explicitly addresses the worst case scenario where a business can’t (or it simply doesn’t make sense to) return to its previous employment level. If you really can’t resurrect your business because of the pandemic, they are not going to withhold loan forgiveness.

If you feel like this may apply to your business, let us know – there needs to be some leg work done here to document why your business is unable to return to normal operations.

Here is the actual language of the House version 

    • to be able document an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020…
    • Or, alternatively, the firm needs to be able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19

Longer loan term

The two-year loan repayment term is now 5 years instead of 2 years. That only comes into play on any portion of your loan that is not forgiven. 

So the pressure of the 8 week forgiveness period is off, and we can use the 24 week period for better planning and use of funds. There is also more room to spend PPP funds on non-payroll costs, but please be aware of the 60% cliff in bold above – don’t fall off the cliff.

We will be in touch with our clients as they approach the old 8 week period to discuss the new options.