The Paycheck Protection Program Flexibility Act (PPPFA)
PPP extension and flexibility
What’s the Focus of the Act?
► Allows additional time to qualify for loan forgiveness
► Eases restrictions on how much should be used on payroll
They Key Impacts
FORGIVENESS PERIOD EXPANDING; NO CHANGE TO APPLICATION DEADLINE
The loan forgiveness period has been expanded from roughly 8 weeks to 24 weeks from the loan origination date and December 31, 2020. Borrowers can also elect for the covered period to remain as currently structured under the SBA’s existing guidance. The PPP application deadline is June 30, 2020, and borrowers intending to participate in the program have until then to submit their applications.
EASING RESTRICTIONS ON ELIGIBLE FORGIVABLE EXPENSES
Only 60% of forgivable expenses now must be used towards payroll costs, as opposed to 75%. This does not technically change the requirement under the SBA’s First Interim Final Rule that at least 75% of the loan be used for payroll costs.)
EXTENDING PERIOD FOR MEASURING FTES AND SALARY/WAGES
The period in which borrowers must restore FTEs or certain salaries (or wages) has been extended from June 30, 2020, to December 31, 2020. There is a proportional reduction of forgiveness if FTEs or salaries (or wages) are not restored to February 15 levels on or before June 30.
This extension, along with the 24-week extension for forgiveness, means if a borrower spends 100% of the loan on payroll costs and other eligible expenses during the 24-week period, and its FTE count and certain salaries (or wages) on December 31 equals or exceeds those amounts as of February 15, the borrower’s entire loan amount will be forgiven.
EXCEPTIONS BASED ON EMPLOYEE AVAILABILITY & SOCIAL DISTANCING/SAFETY REQUIREMENTS
There are two new exceptions to the requirement that borrowers must restore their FTEs to February 15 levels:
1.When the borrower cannot find qualified employees for unfilled positions –
a. This exception could apply when the borrower requires its labor force to have a specific skill set that is in high demand but, more likely, it can apply to situations where borrowers have a difficult time finding employees due to risks associated with COVID-19 and the inability to social distance.
2. When the borrower cannot restore its operations to comparable levels of business activity due to social distancing, sanitation requirements, or customer safety needs –
a. These requirements must have been established 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.
EXTENDING MATURITY DATE AND DEFERMENT PERIOD
The maturity date for loan amounts after the forgiveness period is now a minimum of five years instead of two. The deferment period is extended from six months to the date the borrower’s loan forgiveness amount is determined. The 1% interest rate and all other terms of the promissory notes will remain in place. It remains unclear how (and if) lenders will amend the over 4.4 million promissory notes they have issued over the past two months. It may be most practical to amend the notes at the same time borrowers apply for forgiveness, but each borrower should seek guidance from its lender.
EMPLOYER PAYROLL TAX DEFERRALS FOR TWO YEARS
PPP borrowers can take advantage of the existing payroll tax deferrals permitted under the CARES Act for businesses not participating in PPP. Since the beginning of PPP, a questionable carve-outs from payroll costs has been the employer’s portion of payroll taxes. The PPPFA allows borrowers to defer 50% of the employer’s share of payroll taxes until 2021 and the remaining 50% until 2022.
This information is as of June 8, 2020. Check back for updates.
For complete information on your tax situation, you should always consult with a qualified tax advisor. While Versant Capital Management doesn’t offer tax advice, we are familiar with certain tax situation that our clients face regularly.
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