New PPP Loan Forgiveness Rules !
The House passed a bill earlier this week, and the Senate just passed it last night (Wednesday), modifying and relaxing the PPP forgiveness rules. The President is expected to sign the bill into law soon.
The key changes in summary are:
- Spending period is now 24 weeks (extended from 8 weeks)
- Payroll minimum spending is 60% of the funds received (reduced from 75%)
- Which changes the amount that can be spent on rent, mortgage interest and utilities to 40% (increased from 25%)
- Also gives additional time to meet the FTE requirement.
It is important to note that June 30 remains the deadline for applying to receive PPP loan funding. With the change in the deadline for “spending” PPP funds being moved to Dec. 31, the Senate deliberation was explicitly clear, adding documentation to the Congressional Record, that the change in deadline was only for the spending, and that June 30 remains the deadline for PPP applications.
Many of you have already received communication from your financial institution with the SBA’s application for forgiveness. This will be updated and further instructions should follow.
But for now, revise your understanding as you are assessing your spending with respect to the PPP loan forgiveness rules.
Please feel free to contact us with any addition questions you may have.
Below is a more detail description of these changes as summarized by the American Institute of CPAs (AICPA) that was included in the Journal of Accountancy:
- PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
- Under the language in the House bill, 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.
- Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
- The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
- Borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.