Five Significant Changes Brought on by the PPPFA That Affect How Small Businesses Can Utilize PPP Funds
On June 5, 2020, the President signed into law the Paycheck Protection Flexibility Act (PPPFA) of 2020 (H.R. 7010), a bill that extends certain aspects of the Paycheck Protection Program.
There are five major changes brought on by the PPPFA that affect how small businesses can utilize PPP funds, how to ensure that the total amount of the PPP loan is subject to forgiveness, and the amount of time any amount not forgiven needs to be repaid.
- Small business borrowers can now use up to 40% of the PPP loan for rent, utilities and interest on existing debt.
- While there is currently no change to how employers can use the PPP funds, there is a desire by small businesses to expand the qualified non-payroll expenses to cover protective gear for employees and sanitization supplies, inventory and other expenses.
- This change could have a significant impact on commercial landlords. The previous restrictions could have had the unintended result of a shuttered business paying employees who could not work with little money allocated for paying the rent necessary to stay in their space until they could re-open.
- Now small businesses have until December 31, 2020, to use borrowed funds on payroll and authorized expenses. For shuttered businesses, this makes a significant impact as they may be just starting to re-open and rehire employees or be prohibited from doing so by federal and state law until after the previous June 30, 2020 deadline.
- Small businesses with existing PPP loans can still apply for forgiveness after the original 8-week period.
- PPP loan applications still need to be in by June 30, 2020.
- For payroll expenses to count toward forgiveness, businesses had to rehire most if not all of their employees employed on February 15, 2020, by June 30, 2020. This requirement has been extended to December 31, 2020.
- The extended timeline is especially significant for businesses that could not stay open or have not yet re-opened due to federal and state laws that prohibited their operation.
- Employers will still receive forgiveness for payroll costs if an employer: i) is unable to rehire an employee who was an employee on February 15, 2020, despite written offer to do so; ii) can demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or iii) can demonstrate an inability to return to the same level of business activity as such business was operating as of February 15, 2020.
- Hopefully, some additional guidance will be forthcoming on how you meet these tests, but this is very helpful for those businesses that are just re-opening, have not yet been permitted to re-open, or when they do re-open will be operating at a limited capacity.
- Businesses that cannot go back to full capacity due to compliance with social distancing, sanitization, and worker or customer safety protocols as determined by the Department of Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), and the Occupational Safety and Health Administration (OSHA) will not be penalized for not rehiring all employees.
- Documentations will be essential when it comes to filling out those forgiveness applications.
- For amounts that are not subject to forgiveness, the repayment period has been extended from the initial two-year term to a five-year term, at the same interest rate as initially stated by the PPP, 1%.
- Under the PPPFA, the first payment can be deferred for six months after the SBA determines loan forgiveness.
- Practically speaking, since lenders have 60 days to make a forgiveness determination and the SBA has an additional 90 days, borrowers may not have to start repayment for up to 9 months from that date they apply for forgiveness.
- The PPPFA also allows employers to defer their portion of the payroll tax, 50% to December 2021, and 50% to December 2022.