The Latest on Your PPP Loan Forgiveness

On June 3, 2020, Congress passed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA) that modifies the Paycheck Protection Program (PPP) that was put in place as part of the Coronavirus Aid, Relief and Security (CARES) Act. The PPP is a potentially forgivable loan administered by the Small Business Administration (SBA). This latest legislation changes some of the terms and requirements that will lead to loan forgiveness as we outlined in our recent article.

The key provisions of the PPPFA are as follows:

Longer period for borrowers to use the funds eligible for forgiveness
More of the loan may be used for eligible non-payroll costs
Longer period in which an employer may re-hire or eliminate a reduction in payroll
Allows employers to defer payroll tax payments along with forgiveness of a PPP loan
Longer period of deferral before repayments must begin
Longer period to repay the non-forgiven portion of the loan

This table compares the original provisions with the revised rules:

	Original Rules	Revised Rules
The “Covered Period” for use of loan funds	8 weeks (about 2 months) from receipt of the loan proceeds.	24 weeks (about 6 months) from receipt of the loan proceeds.
Use of loan funds to be eligible for forgiveness	At least 75% of the loan proceeds had to be used for payroll costs, with up to 25% for non-payroll costs.	Up to 40% of the loan proceeds may be used for non-payroll costs, with only 60% required to be used for payroll costs.
Re-hiring employees or restoring pay cuts	Employment and pay levels had to be restored by June 30, 2020.	Employment and pay levels need to be restored by December 31, 2020.
Payroll tax deferrals	PPP loan recipients were ineligible for payroll tax deferrals.	Payment of the Social Security taxes on payroll paid between March 26 and December 31, 2020 may be deferred. 50% is due by the end of 2021 with the remainder by the end of 2022.
Deferral of PPP loan payments	Repayment of the unforgiven balance of a PPP loan would begin in 6 months.	Repayment will be deferred until borrowers receive compensation for forgiven amounts. Borrowers who do not apply for forgiveness will have up to 10 months from the program’s expiration to make payments.
Repayment of the unforgiven PPP loan	Repayment was due within 2 years, with interest at 1%.	Repayment is due within 5 years, with interest at 1%.

One of the primary provisions of the PPP was that employers maintain their workforce at the same level as it had been in earlier periods, and the PPPFA gives additional time (until December 31, 2020) to accomplish that goal. However, if an employer can document that it was unable to rehire the same individuals, or similarly qualified employees, or to return to the same level of business activity as it had prior to February 15, 2020, then its PPP loan forgiveness will not be impacted.

A borrower who already received a PPP loan prior to the enactment of the PPPFA may optionally elect to have the Covered Period end in accordance with the original terms - that is, 8 weeks after receipt of the loan proceeds. This option might be useful if a practice can meet the staffing and pay rate criteria by June 30, but might anticipate future staff reductions and therefore might drop under the levels required for loan forgiveness. The 8-week covered period would also be attractive to a practice that has already spent its PPP funds and can wrap up its forgiveness application filing in a timely manner.

Those practices that are using their PPP to fund payroll for individuals who earn $100,000 or more will find that they will be able to obtain forgiveness for a larger amount of such payroll. The original 8-week covered period allowed a maximum of only $15,385 to be forgiven (8/52 x $100,000) but with the 24-week covered period the maximum will now be $46,154 per person.

In many cases this new legislation will make it somewhat easier for employers to achieve forgiveness of all or part of their PPP loan. Note that the program changes made by the PPPFA necessitate changes to the PPP Loan Forgiveness Application that was released recently. We will review those changes and keep you updated with any further revisions to this important program as they arise. Subscribe to this blog for the latest information.