As of June 17, 2020, $120 billion remains in the Paycheck Protection Program (PPP) fund, and the application deadline is June 30.
On June 5, the Paycheck Protection Program Flexibility Act (PPPFA) was signed, which made changes to the original program.
The PPPFA legislation left a lot of folks with more questions, so in an effort to offer clarity, the Treasury issued new guidance.
Here’s a quick summary of everything that happened with the PPP this week:
- On June 12, 2020, the Small Business Administration (SBA) issued a new PPP loan application. It hasn’t changed much, but it has been updated to reflect new calculations and parameters defined in the PPPFA.
- On June 16 we got a new set of interim final rules clarifying the new, more flexible guidelines the act introduced. These will be handy for your covered period and safe harbor forgiveness calculations. Check them out, but note more guidance is still to come.
- Here’s what we’re most excited about: We finally have an updated version of the PPP loan forgiveness application that includes those PPPFA guidelines—and more importantly, a new EZ application has been introduced. Why are we excited about this?
- There are additional situations that will qualify employers for a safe harbor that will allow for full forgiveness.
- The new EZ application covers any borrowers who have no employees (contractors and sole props, we’re looking at you) or didn’t reduce salaries or wages by more than 25%. All to say: a lot of small business owners are eligible.
Want more details? Keep reading:
Applying to Get Your PPP Loan Forgiven Just Got Easier
If you’ve already gotten your PPP loan, the new EZ application makes applying for loan forgiveness much simpler. Even better: All mentions of Schedule A and the Schedule A Worksheet has been eliminated.
The borrower must meet a set of requirements to be eligible to use the EZ application. In order to be eligible, one of these must be true; the borrower must be:
- Self-employed; or
- An independent contractor; or
- A sole proprietor with no employees (which means that no employee salaries could have been included on the PPP application form); or
- An employer who didn’t reduce salary or wages for any employee by more than 25% during the covered (or alternative) period compared to the period between January 1, 2020 and March 1, 2020. This one is a little more complex; to qualify under this requirement, the borrower must also meet one of the following requirements:
- The borrower did not reduce the number of employees or the average paid hours of employees from January 1 until the end of the covered period (this excludes former employees who refuse to return); or
- The borrower was unable to operate during the covered period at the same level of business activity as before February 15 due to COVID-19 requirements or guidance issued between March 1 and December 31 by the CDC, OSHA, or HHS.
It’s important to note that the owner and employee compensation limits that apply to the standard loan forgiveness application also apply to the EZ application but those numbers have been updated in some situations.
An easier forgiveness process means more businesses are eligible to receive PPP money with no obligations to repay any of it. If you haven’t already applied for a PPP loan, consider applying ASAP.
The Covered Period for Forgiveness
The covered period (the period in which the loan money must be used if you want it to be forgiven) is 24 weeks from the day the loan was disbursed, but if the borrower received the loan before June 5, 2020, the covered period can be eight weeks. Aren’t sure how long your covered period is? Confirm it with your lender.
The Alternative Covered Period
An alternative covered period allows the borrower to align the covered period with the payroll period. That means you can choose to start your covered period on the first day of your first payroll period after your PPP loan is disbursed. But, note this is only allowed for businesses with bi-weekly or more frequent pay periods.
Owners can pay themselves a maximum of either:
- Within an eight-week covered period: Eight weeks worth of the net profit earned in 2019—but not more than $15,385; or
- Within a 24-week covered period: Two and a half months worth of net profit earned in 2019—but not more than $20,833.
It’s important to note that qualified paid sick leave under the Families First Coronavirus Response ACT (FFCRA) is excluded from these amounts.
Employees can be paid a maximum of either:
- Within an eight-week covered period: Up to $15,385; or
- Within a 24-week covered period: Up to $46,154.
Payroll costs include:
- Tips and commision
- Covered benefits (only for employees—not for owners) including health care and retirement
- State taxes (like unemployment insurance)
To understand more about what’s included in payroll costs, review this full list of covered expenses.
Expenses Outside of Payroll
The PPPFA stated that in order for a loan to be forgiven, 60% had to be spent on payroll expenses; this is different than the previous guidance from the SBA which said that 75% had to be spent on payroll. This should provide more flexibility for owners to spend PPP funds the way they need to. Even those who spend more on non-payroll expenses will be eligible for forgiveness—but the forgiven amount will be reduced.
Also, the time in which to spend the loan proceeds on non-payroll expenses has been extended to 24 weeks. Non-payroll expenses include utilities, rent, and the interest on mortgage payments, and these expenses may include costs that were incurred or paid during the covered period.
The PPPFA offered flexibility around rehiring employees; this new guidance offers even more.
In order to be eligible for a safe harbor that allows for full forgiveness (even if you needed to terminate employees during the pandemic), one of these must be true:
- The businesses must demonstrate there were no reductions in the number of employees or average paid hours from January 1, 2020 through the end of the covered period; or
- The businesses must demonstrate with documentation that it was unable to operate between February 15, 2020 through the end of the covered period at the same level of business activity that existed before February 15 due to guidance issued from March 1, 2020 through December 31, 2020 by Health and Human Services (HHS), the Centers for Disease and Control Prevention (CDC), or the Occupational Safety and Health Administration (OSHA) related to COVID-19; or
- By December 31, 2020, the business has restored headcount to what it was during the pay period that includes February 15, 2020.
As more guidance is released and changes are made, we will continue to keep you updated and informed. Check the COVID-19 Small Business Resource Hub for the latest.