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The emotional rollercoaster of the PPP has seemingly finished its convoluted twists and turns and is on course to ease the minds of many business owners.  On June 5, 2020, Congress and President Trump left their imprint on the PPP by enacting a multitude of beneficial changes through the Paycheck Protection Flexibility Act of 2020.  These changes, which are described in greater detail below, include an extension of the loan period, exemptions to potential reductions of loan forgiveness, a reduction of proceeds required to be used toward “payroll costs,” and a payment extension for certain payroll taxes.  

Extension of the Loan Period

Many questions since the enactment of the PPP have pertained to the use of loan proceeds within the original eight week period.  For those who still have proceeds to use with little time left under the original period, the new law, if you choose, extends this period threefold to twenty-four weeks from loan origination.  This additional time should be helpful to businesses deciding how and where to allocate their remaining proceeds.  

For potential recipients who have not yet received the PPP, you may be entitled to the full twenty-four week period or the remaining time between your loan origination and December 31, 2020.  

As you may glean, this extended period relieves recipients of the time constraints and pressure the original PPP requirements imposed.   

Exemptions to Possible Reductions of Loan Forgiveness

Another problematic PPP provision in the CARES Act was the requirement to retain the same number of full-time equivalent employees to prevent a reduction of loan forgiveness.  Fortunately, however, the new law exempts this reduction if the business was unable to rehire on or before December 31, 2020 the same individuals who were employed as of February 15, 2020 or similarly qualified employees.  

In addition, the new law exempts this reduction if the business was not able to return to the same level of business activity: (1) as of or prior to February 15, 2020; and (2) due to compliance with HHS, CDC, or OSHA standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 which began on March 1, 2020 and ends on December 31, 2020.  

Importantly, if a business decides to use either of these additional exemptions to prevent a reduction of loan forgiveness, it must provide documentation.  If a business cannot avail itself of these new provisions, it may still attempt to use the exemptions under the CARES Act, which are explained in the previous article on our website, with the deadlines of June 30, 2020 replaced with December 31, 2020.  

New “Payroll Cost” Percentage Required for Loan Forgiveness 

A third troublesome provision concerned the percentage of loan proceeds required to be used toward “payroll costs.”  Under original SBA guidance, business owners needed to use 75% of proceeds to these costs, but the new law reduces this percentage to 60%.  With this new change, if a recipient did not use 60% of its proceeds on “payroll costs”, it can reduce the forgivable amount (understanding that it needs to pay back the unforgiven amount) to the point where “payroll costs” equate to 60% of the new amount.  

As an example, if a company received $100,000, then 60% of the proceeds need to be used toward “payroll costs” to attempt full loan forgiveness.  However, if a recipient only used $50,000 (50%) toward “payroll costs”, then the recipient needs to reduce the forgivable amount to $83,333.33 instead of $100,000 for $50,000 to equal 60% of the forgivable amount.  To receive this new forgivable amount (e.g., $83,333.33), the recipient takes the amount used toward “payroll costs” (in our example we used $50,000) and divides it by 60% (the amount required to be used toward “payroll costs”).  In this way, the recipient receives its total forgivable amount, assuming there are no other reductions or misused funds.  

Payroll Tax Deferral

The CARES Act prohibited employers from delaying payment of certain payroll taxes if the PPP was forgiven, but the new law allows recipients to delay such taxes incurred between March 27, 2020 and December 31, 2020 without penalty or interest charges.  Recipients must pay 50% of the deferred amount by December 31, 2021 and the remainder by December 31, 2022.   

Possible Loan Repayment Extension and Changes to Loan Deferment 

Businesses that have yet to receive the PPP may have the luxury to wait a minimum of five years until the loan matures.  However, for current recipients the SBA’s rule that the loan matures within two years will remain in effect unless the recipient and lender agree to a modification.  

In addition, loan deferment is now the date loan forgiveness is determined and remitted to the lender vice the former SBA requirement of 6 months.  However, if a recipient fails to apply for loan forgiveness, the deferral period is ten months after the last day of the eight week period of loan distribution.  

Final Thought

In light of this newly expanded law and the modifications, a recipient may now make positive and unambiguous strides forward.  From what can be seen thus far, we have a decent chance that the worst is behind us with the best yet to come.  Remember though, it is vital to keep up to date on any changes to the PPP as it applies to your business.  

As always, Campbell & Bissell, PLLC wishes you the best in your PPP endeavors and our attorneys are always available to assist with any questions you may have.