Paycheck Protection Program Flexibility Act of 2020 PPPFA Summary Dalby, Wendland & Co , P C.

Summary Of Paycheck Protection Program Flexibility Act

For those businesses that received PPP loans early in the process, eligibility for applying for loan forgiveness began as early as May 27, 2020, eight weeks after the first distributions of PPP loan proceeds. The compensation of an owner-employee of at least 5% of the C corporation is allowable and limited to the amount of their 2019 employee cash compensation, employer retirement contributions on their behalf, and health insurance contributions on their behalf.

Summary Of Paycheck Protection Program Flexibility Act

A business is not required to begin to pay any principal or interest to the lender until the date that the Small Business Administration disburses the amount of loan forgiveness to the lender. If the business does not apply for loan forgiveness, then the business is not required to begin to pay principal or interest to the lender until ten months plus 24 weeks after the date the loan proceeds were disbursed to the business.

Also note that a different covered period applies for forgiveness purposes, as is further described below. The Paycheck Protection Program Flexibility Act was signed into law on June 5, 2020 and amends certain terms of the Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security Act . The PPP has made available to small businesses up to $659 billion in potentially forgivable loans for the payment of payroll costs and certain other expenses. The following is a summary of the terms of the PPP that have been amended by the PPP Flexibility Act. Relatedly, if a borrower reduced salaries or employee levels, the CARES Act permitted borrowers to restore salaries and employee levels by June 30, 2020 without being subject to any reductions in loan forgiveness.

On June 18, Sens. Benjamin Cardin (D–MD), Chris Coons (D–DE), and Jeanne Shaheen (D–NH) introduced the Prioritized Paycheck Protection Program Act in the Senate, and Reps. Angie Craig (D–MN) and Antonio Delgado (D–NY) introduced the bill in the House of Representatives. The judge may affirm the Small Business Administration’s decision, deny the Small Business Administration’s decision, or remand the matter back to the Small Business Administration for additional consideration. A judge will not reverse a decision by the Small Business Administration entirely because a different decision could have been made. The judge’s decision will generally be made publicly available unless the judge places a protective order or the Small Business Administration approves the business’s request to redact certain information. If the business operates internationally, PPP loan proceeds must only be used for the benefit of its operations in the United States and its possessions. For PPP loans that the Small Business Administration approved on or after June 5, the PPP loan must have a maturity of at least five years. For other PPP loans, the PPP loan has a maturity of two years; each lender has the option to extend the maturity of these PPP loans longer.

III. Paycheck Protection Program—Revisions to First Interim Final Rule (85 FR

Some PPP loans were received by businesses owned or run by members of Congress or their spouses. On June 16, Politico reported that this included Reps. Susie Lee (D–NV), Debbie Mucarsel-Powell (D–FL), Roger Williams (R–TX), and Vicky Hartzler (R–MO). Three weeks prior, Dean Phillips (D–MN) had introduced legislation to require public release of the name of many of the recipients of PPP loans, but enough Republicans voted against it that the bill did not pass. Lee and Muarsel-Powell had voted in favor of public disclosures while Williams and Hartzler had voted against public disclosures. The Act stated that entities that received a PPP loan of less than $150,000, rather than $50,000, would be eligible to use a simplified one-page loan forgiveness application. KSM is here to answer your questions, assist with the calculation of eligible expenses for loan forgiveness, and help prepare the necessary documentation to support your loan forgiveness application.

What are the qualifications for a PPP loan?

Who Qualifies for a PPP Loan? Any small business with 500 or fewer employees may be eligible. This includes small businesses, S corporations, C corporations, LLCs, private nonprofits, faith-based organizations, tribal groups and veteran groups.

The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments; I understand that if the funds are knowingly used for unauthorized purposes, the Federal Government may hold me legally liable such as for charges of fraud. As explained above, not more than 40 percent of loan proceeds may be used for nonpayroll costs. Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020. If you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan.

Loans made to publicly traded companies

This safe harbor is beneficial for industries still under certain workplace restrictions. For example, restaurants, entertainment venues, and retail businesses all still face significant difficulties in returning to full capacity. Thus, some borrowers should keep careful documentation of how compliance with such health & safety orders is impacting their businesses. An employer whose PPP loan has been forgiven is no longer excluded from deferring its share of payroll costs. The CARES Act includes a provision that allows employers to defer payment of their share of payroll taxes until 2021.

Summary Of Paycheck Protection Program Flexibility Act

These same reasons provide good cause for SBA to dispense with the 30-day delayed effective date provided in the Administrative Procedure Act. Although this interim final rule is effective on or before date of filing, comments are solicited from interested members of the public on all aspects of the interim final rule, including section III below. The SBA will consider these comments, comments received on the interim final rule posted on SBA’s website April 2, and published in the Federal Register on April 15, 2020, and the need for making any revisions as a result of these comments. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. An eligible borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes as described below and employee and compensation levels are maintained or, if not, an applicable safe harbor applies. However, to receive full loan forgiveness, a borrower must use at least 60 percent of the PPP loan for payroll costs, and not more than 40 percent of the loan forgiveness amount may be attributable to nonpayroll costs. For example, if a borrower uses 59 percent of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive.

Understanding the Paycheck Protection Program Flexibility Act of 2020

If the borrower does not submit a loan forgiveness application to its lender by October 10, 2021, the borrower must begin making payments on or after October 10, 2021. Small Business Administration posted on its website an interim final rule relating to the implementation of sections 1102 and 1106 of the Coronavirus Aid, Relief, and Economic Security Act . Section 1102 of the Act temporarily adds a new product, titled the “Paycheck Protection Program,” to the U.S. Subsequently, SBA issued a number of interim final rules implementing the Paycheck Protection Program. On June 5, 2020, the Paycheck Protection Program Flexibility Act of was signed into law, amending the CARES Act. This interim final rule revises SBA’s interim final rule published in the Federal Register on April 15, 2020, by changing key provisions, such as the loan maturity, deferral of loan payments, and forgiveness provisions, to conform to the Flexibility Act. SBA also is making conforming amendments to the use of PPP loan proceeds for consistency with amendments made in the Flexibility Act.

  • Lowers the proportion of funding that must be used toward payroll from 75 percent to 60 percent.
  • Employers with tipped employees may receive forgiveness for additional wages paid to those employees.
  • However, a congressional letter was added to the record to clarify that no new PPP loans may be originated after June 30, 2020.
  • On June 5, 2020, the Paycheck Protection Program Flexibility Act of was signed into law, amending the CARES Act.
  • If the Small Business Administration has already approved PPP loan forgiveness and has sent payment to the lender, the lender must notify both the borrower and the Small Business Administration through the SBA Paycheck Protection Platform.
  • The time to pay off the loan has been extended to five years from the original two.

The CARES Act contains provisions under which eligible businesses may defer payment of payroll taxes, but it specifically forbid PPP borrowers from taking advantage of such deferral. The Act now allows PPP borrowers to defer up to 2 years of payroll taxes under those CARES Act provisions. Now that the majority of small businesses seeking PPP loans have received their PPP proceeds, many PPP borrowers have turned their attention to understanding what will help them qualify for loan forgiveness. On June 3, the Senate approved the Paycheck Protection Flexibility Act (the “Act”), which had been approved by the House of Representatives on May 28 and as of June 4 is ready to be signed by the President. The Act makes several changes to the PPP, which generally will help borrowers to maximize forgiveness under their PPP loans.

Important IRS Guidance on Non-Deductibility of PPP-Related Expenses

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Employers must then pay 50 percent of such taxes in 2021 and the other 50 percent in 2022. The law previously contained an exclusion for employers who receive forgivable PPP loans – these employers could not defer paying their shares of payroll taxes. The Act now eliminates this exclusion by permitting all employers to defer the payment of their share of payroll taxes regardless of whether they have received forgiveness for PPP loans.

Summary Of Paycheck Protection Program Flexibility Act

The Paycheck Protection Program Flexibility Act extends the covered period from February 15, 2020 to June 30, 2020 to February 15, 2020 to December 31, 2020. The period during which PPP loan funds may be used is extended from eight weeks to 24 weeks after the disbursement of the PPP loan, or up until December 31, 2020, whichever period ends earlier. Borrowers who received a PPP loan before the enactment of the Flexibility Act may elect to use an eight-week forgiveness period. Both applications give borrowers the option of using the original 8-week covered period or an extended 24-week covered period. These changes will result in a more efficient process and make it easier for businesses to realize full forgiveness of their PPP loan. Under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, forgivable loans to first- and second-time small business borrowers are available through the PPP. Eligibility was expanded for nonprofits and dedicated funds are available to very small businesses and community-based lenders.

Paycheck Protection Program Flexibility Act Signed Into Law

These funds will be exhausted quickly, as there is a backlog of applications in process. Contact your bank immediately and get this process started, if you haven’t already. There’s approximately $130 billion in unspent money under the Paycheck Protection Program, which has prompted a discussion among lawmakers about what to do with the funds. In effect, the subsidy in Period 2 transfers the cost of employment to the government and offsets the decline in net operating surplus. There is no change in compensation because only the source of funding has changed.

  • The principal of a PPP loan will be either partially or fully forgiven under certain circumstances.
  • This amount was intended to equal $100,000 annualized for an 8-week period since that was the original Covered Period in the CARES Act.
  • If you are approved for a PPP loan, your application with the other lenders will eventually be rejected, so it’s best to withdraw your application from the other lenders once you’ve been approved.
  • You’ll need to provide payroll/bookkeeping records to prove your payroll expenses.
  • Under the CARES Act and related SBA guidance, the maximum loan forgiveness amount is reduced if a Borrower reduces its FTE-levels or employee salary/wages in excess of 25 percent as compared to an earlier reference period.
  • To address this issue, the Act now extends the PPP program “covered period” until December 31, 2020, and gives employers 24 weeks, rather than eight weeks to spend PPP proceeds.

Additionally, a borrower’s loan forgiveness amount will not be reduced when an employee is fired for cause, voluntarily resigns, or voluntarily requests a reduced schedule during the covered period. Additionally, the obligation to allocate 75% of the PPP funds to cover payroll costs was seen by many as impractical for PPP borrowers given current economic conditions. Now, the PPP Flexibility Act allows small businesses some flexibility in how and when they spend their PPP funds. Lenders receive payment on approved PPP loans based on the amount of the loan.

Payment is 5 percent of loans of up to $350,000; 3 percent of loans of between $350,001 and $1,999,999; and 1% of loans between $2,000,000 and $10,000,000. Payment is disbursed to the bank within five days that the lender disbursed the loan proceeds to the business.

  • The SBA’s May interim final rule offered additional clarification on the payment of bonuses and hazard pay.
  • Others may not have sufficient funds to pay employees for the entire 24-week period, so necessary furloughs occurring after the first 8 weeks could result in a reduction in overall forgiveness.
  • If the PPP loan was made before June 5, the business may choose to use an eight-week period instead.
  • The SBA and Department of Treasury will likely provide additional guidance and clarification.
  • Until there is further guidance, we suggest assuming that the aforementioned extension is not applicable to borrowers who elect to use the original eight-week period—a suggestion that holds through for the good-faith exemptions as well.
  • A lawsuit was filed by several press organizations within the United States District Court for the District of Columbia in May 2020 seeking exact details of the PPP loan applicants beyond the information posted by the Small Business Administration.
  • The CARES Act was silent as to the time period within which Borrowers must apply for loan forgiveness.

Under the CARES Act, complete payment deferment relief was eligible for borrowers loans for a period of not less than six months, including payment of principal, interest, and fees, and not more than one year. The SBA’s Interim Final Rule clarified that borrowers would not have to make any payments for six months following the date of disbursement and may receive authorization from the Administrator to defer loan payments for up to one year. The PPPFA has extended the deferment period to the date on which the lender is reimbursed by the SBA for the forgivable portion of the loan. However, if an eligible recipient fails to apply for loan forgiveness within 10 months after the last day of the covered period, such borrower would begin to make payments of principal, interest, and fees on such covered loan no earlier than the aforementioned 10th month. Note that the Act specifically limits the public health laws and guidance to those issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention and the Occupational Safety and Health Administration. Documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the loan forgiveness covered period for the loan will be provided to the lender.

The new bill responds to complaints that the strict requirements on how employers spend the PPP funds disqualify them from obtaining the promised loan forgiveness, given the ongoing inability for many businesses to reopen. BEA’s classification of monies flowing through this program as subsidies recognizes that these payments support keeping businesses afloat and retaining employees to maintain current production or to re-open more quickly when permitted.

Applying for loan forgiveness before the end of the covered period does not necessarily change the covered period. Mortgage interest payments are allowable and are eligible for forgiveness if the business mortgage was obligated prior to February 15, 2020.

Government Affairs Team

Payments deferred until the lender receives the forgiven amount from the SBA or 10 months from the end of the covered period if the borrower does not apply for forgiveness within that 10 months. The period for deferment of loan payments has been extended to when the amount of forgiveness is determined and remitted to the lender.

On April 28, the guidance was extended to businesses owned by private companies with similar situations. For an owner-employee of a S corporation, health insurance benefits and retirement contributions are allowable costs but do count against the maximum amount of loan forgiveness for compensation above. An applicant was not charged any application fees by either the private lender or the federal government. The Small Business Administration compensates lenders for processing PPP loans.

You can apply through any existing SBA 7 lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether Summary Of Paycheck Protection Program Flexibility Act it is participating in the program. The SBA guarantees the loans, so borrowers will need to apply through banks, credit unions and other lenders. The EZ application requires fewer calculations and less documentation for eligible borrowers. Details regarding the applicability of these provisions are available in the instructions to the new EZ application form.

Borrowers who received a PPP loan prior to enactment of the Act can now choose whether to spend their funds over a period of 24 weeks or the original 8 weeks. This change allows many borrowers additional time to use their PPP funds, given that many had been struggling to use a loan amount based on 2.5 months’ payroll in only 8 weeks.

This guide highlights the specific provisions of that bill that may impact the charitable sector. The Congress has passed four other bills which are included in the Comprehensive Guide. Finally, the Act extends the term of PPP loans from two years to five years. We provide payroll, global HCM and outsourcing services in more than 140 countries.

This is an important change to note because the guidance issued by the SBA and Department of the Treasury’s previous guidance placed the cap on non-payroll costs at 25% of the total forgiveness amount, not the total loan amount. For example, if you use your PPP to cover payroll for the 8-week covered period, you cannot use a different SBA loan product for payroll for those same costs in that period, although you could use it for payroll not during that period or for different workers. Gives the borrower the option to extend the amount of time in which the loan must be spent from eight to 24 weeks. New PPP loans will have a 24-week covered period, but the period can’t extend beyond Dec. 31, 2020. The House of Representatives overwhelmingly voted on May 28 to give small-business owners more flexibility regarding the forgiveness of Paycheck Protection Program loans.

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