Changes in the Paycheck Protection Program (PPP) have been approved by both houses of Congress and have the potential to make the COVID-related aid effort more beneficial.
“The legislation provides borrowers greater flexibility with respect to the PPP loan forgiveness process,” the law firm of Scopelitis Garvin Light Hanson Feary said in an email about the changes approved by the Senate in unanimous consent with changes already approved by the House of Representatives.
A significant change appears to be a widening of the period to calculate loan forgiveness to 24 weeks from eight weeks. The problem that some businesses that had already received funds were facing was that they weren’t able to fully reopen or not open at all since they had funds disbursed to them. Given that, they might not have enough work for employees to generate the payroll expenses that would cover 75% of the size of the loan, the percentage required by the U.S. Small Business Administration (SBA) for full forgiveness of the PPP money.
But by widening the period for forgiveness to 24 weeks from eight weeks, it will allow recipients of PPP money more time to get their businesses rolling and incur payroll costs. So a company that received a loan in April that may not have had adequate employee expenses over its next eight weeks because of various conditions now has 24 weeks in which to spend it.
But the other significant shift is that the percentage of money that needs to be spent on employee expenses is being cut to 60% from 75%, “thus allowing a greater percentage to be used for other authorized operational expenses,” Scopelitis said in its note.
“This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness,” the Journal of Accountancy said in its review of the legislation.
The bill has not been sent to the President for approval. The Senate approved it by unanimous consent so it will not need to go through conference.
“Borrowers that are well down the path of their 8-week covered period for determining PPP loan forgiveness expense costs will want to take a breath and recalibrate their calculation strategies,” Scopelitis said in its note.
The earlier bill had required that any re-hires that might be made would need to get done by June 30 to be considered part of the borrowing base that could be forgiven under PPP. But in another significant shift, the “safe harbor” for that requirement now has been pushed to December 31.
The loan forgiveness is not total; it’s proportionate. Along with that provision comes forgiveness that Scopelitis says would be granted if a recipient has “an inability to return to pre-February 15 business levels due to compliance with federal COVID-related requirements or guidelines.”
Another provision is that if a recipient finds that all or part of its loan is viewed as not eligible for full forgiveness, the repayment period is now five years; it had been two. The interest rate on the payback remains at 1%.
The AICPA also reports that the bill permits businesses that took a PPP loan to also delay paying their payroll taxes, which was prohibited in the CARES Act that established PPP.
Trucking and transportation in the first phase of PPP was generally viewed as getting less than its fair share of funds relative to its size of the economy. In a report of the first disbursements through April 14, the share of funds that went to transportation and warehousing was 3.16%. And in the latest report, through May 30, it’s barely budged; it’s 3.18%.
If you think you might want to get in on the money available under PPP but worried you missed the opportunity, that isn’t a concern. Although Phase 1 funding ran out quickly, that hasn’t been the case with Phase 2. The total authorization between the two tranches of PPP money is $650 billion. But as of May 30, according to the SBA, only about $510 billion of it had been authorized.
The SBA has been making rule changes and adjustments frequently to deal with concerns that the program is not meeting borrower needs, leading to the surplus of available funds this far into the program.