In welcome news for practices navigating the reopening process, some much-needed flexibility has been added to the CARES Act's Paycheck Protection Program (PPP). The revisions give practices more time to rehire employees and more freedom to spend loan proceeds.
Designed to help businesses weather COVID-19 and keep employees on the payroll, the federal program initially gave businesses only until June 30 to rehire employees laid off or reinstate employees furloughed between February 15 and April 26. But since many businesses remain in the early stages of reopening, or have not reopened at all, that created problems. The rehiring deadline has now been extended until December 31.
The Paycheck Protection Program Flexibility Act (PPPFA), passed almost unanimously by the House and Senate and signed by the President on June 5, also gives PPP borrowers additional time to spend loan proceeds if they are seeking forgiveness. Businesses originally had only two months after receipt to spend the loan proceeds. Borrowers now can have the loans forgiven if proceeds are spent within six months after the loan's origination, or by December 31, 2020, whichever comes first.
In another key provision of the PPPFA, the proportion of loan proceeds required to be spent on payroll costs has been reduced. Initially, in order for the loan to be forgivable in full, businesses had to spend 75 percent of the loan proceeds on payroll costs, which include:
- Salary, wages, commissions
- Employee benefits (including vacation, parental, family, medical, or sick leave)
- Allowance for separation or dismissal
- Payments for group healthcare benefits (including insurance premiums and retirement benefits) and
- State and local taxes assessed on compensation
The PPPFA reduces the proportion that must be spent on payroll costs to 60 percent. The loosening of restrictions means that practices can now spend up to 40 percent of loan proceeds on other allowable business costs, including most mortgage interest, rent, and utility costs, and have the loan forgiven.
Although practices now have more time to spend loan proceeds, and more flexibility on rehiring and how to spend loans, the PPPFA did not extend the deadline for submitting loan applications to the Small Business Administration. The SBA, which administers the PPP, will not be accepting applications after June 30.
Under the PPPFA, businesses currently applying for loans have five years to repay any portions of the loans that are not forgiven. Businesses that have already applied must repay the non-forgivable portion of their loans within two years. The PPPFA also includes provisions allowing businesses receiving loan forgiveness to defer payroll taxes.
The PPP in early April earmarked $350 billion in loans to help employees stay on the payroll. With high demand for the first-come, first-serve program, the funds were exhausted within two weeks and another $310 billion was allocated in late April. For more details on the program, visit https://www.sba.gov/.
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