The PPP Flexibility Act is Signed

If you received a PPP loan which provided small businesses and non-profits with funds to hold on to current employees and bring back workers who have been laid off or furloughed.  Even with business not fully re-opened it has helped many businesses with less than 500 employees to access loans through the Small Business Administration (SBA) to use on payroll and operating costs during the business disruption created by the COVID-19 pandemic.

The funds can be used to pay any eligible expenses incurred during the period beginning on the date the lender makes the first disbursement of the PPP loan to the borrower.   Eligible expenses include payroll costs and non-payroll costs (mortgage interest, rent, insurance premiums, and utilities).

What changes were made under the PPP Flexibility Act

For new loans, the maturity period is now a minimum of five years, compared to the original two-year term established by the SBA. This applies to loans obtained after the passage of the PPP Flexibility Act (June 5, 2020), but borrowers and lenders could agree to extend the terms of any current loan.

Amendments to PPP loan forgiveness

Many of the changes to the loan forgiveness provisions of the PPP loan involved extended deadlines, as well as to the covered period for loan forgiveness. Additional changes were made on the percentages applied to eligible costs that could be forgiven and exemptions on full-time equivalent (FTE) employees that are included in calculating forgiveness.

·         Extends the covered period. The covered period begins on the date you receive your loan and ends 24 weeks later, or Dec. 31, 2020, whichever is earlier. Borrowers who received a PPP loan before June 5, 2020 (the effective date of the PPP Flexibility Act) may elect to use their original covered period (eight weeks after their loan received).

·         Loan forgiveness. Amends SBA rule requiring that not more than 25% of the borrower’s loan forgiveness amount could be attributed to non-payroll costs. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.

·         FTE Salary/Hourly Wage Re-Hire safe harbors. Extends the time a borrower can qualify for the FTE and Salary/Hourly Wage reduction safe harbors from June 30, 2020 to Dec. 31, 2020 if they fully restore FTEs and/or salary/hourly wages. The Act also created a new FTE Reduction Exemption that provides loan forgiveness will not be impacted if the FTE reduction was due to being unable to re-hire employees (or hire similarly qualified employees) or return to pre-COVID-19 business activity.

·         Extended Deferral of Loan Repayment. Extends deferment of payments of loan principle, interest and fees, from the current six months, to the date when the SBA pays the forgiveness amount to your lender. If a borrower has not applied for forgiveness of a covered loan within 10 months after the last day of the covered period payments on principal, interest and fees will begin.

Employer payroll taxes

Employers would be able to defer payment of their share of Social Security taxes, even after a PPP loan is forgiven. This replaces the original provision of the CARES Act.

Moving forward

This information was provided by Paychex, which is a member of the Chamber.  Please keep in mind, many businesses have a great deal to consider when applying for a PPP loan and forgiveness and should consult with their accounting professional and legal advisor to determine the best course of action.

Jerry Schalow – President/CEO

Rio Rancho Regional Chamber of Commerce

4001 Southern SE Suite B

Rio Rancho, NM 87124

Ofc 505-892-1533 | Cell 505-504-4991