On May 28, 2020, the U.S. House of Representatives approved a bipartisan bill, the Payroll Protection Flexibility Act 417 to 1. On the evening of Wednesday, June 3, this bill passed in the Senate and is now on its way to the President’s desk where he is expected to sign it.
What is the Payroll Protection Program Flexibility Act?
The Payroll Protection Program Flexibility Act is an updated set of guidelines intended to make it easier for businesses to qualify for full forgiveness of the PPP loan. Some key takeaways from the act include decreasing the threshold for required payroll expenses from 75% to 60% and extending the forgiveness period from 8 weeks to 24 weeks.
What are the new forgiveness guidelines under the passed Payroll Protection Program Flexibility Act?
Under this bill, updates to PPP forgiveness include:
- Borrowers can apply for a PPP loan up to December 31, 2020 if PPP funds remain available.
- PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
- The payroll expenditure requirement drops to 60% from 75%, but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met.
- Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
- The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
- Borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
More Information About PPP Forgiveness
Preferred CFO is committed to helping our network navigate the challenges we face during the COVID-19 crisis and beyond. We hope to help by providing updates and information as we receive it, as well as offering free financial consultations to those companies who may be seeking guidance during this time or who may benefit from speaking with a seasoned, high-level CFO.
The PPP loan forgiveness form was released by the SBA as of Friday, May 19. This application may be access by clicking the button below or by copying and pasting the below URL into your address bar.
The PPP Loan Forgiveness Application includes:
- The PPP Loan Forgiveness Calculation Form
- PPP Schedule A
- PPP Schedule A Worksheet
- An optional PPP Borrower Demographic Information Form
For assistance filling out this form, you may contact your lender. You may also feel free to reach out to Preferred CFO’s fractional outsourced CFO team and we will be happy to answer your questions and provide guidance.
How to apply for loan forgiveness:
To apply for loan forgiveness, complete the Loan Forgiveness Application and submit it to your lender. You may access the application online and print it out to submit a hard copy to your lender, or you may submit an electronic copy through your lender. Talk to your lender if you’re unsure how they’d prefer to receive the form.
These resources should be used to plan ahead for your forgiveness, but shouldn’t be filled out yet. As you near the end of your 8- or 24-week period, reach out to your lender for the proper guidelines on applying for forgiveness. This way, you can see where you may be coming up short and make the necessary adjustments to get the most “bang for your buck” in forgiveness.
Something else to note, is that as soon as forgiveness is granted, you can no longer defer the ER portion of Social Security, if you had elected to defer that during the PPP loan period. This may provide good cause to wait to apply for forgiveness until just before payments are due (120-day deferral of payment on the PPP loan), and then you can defer taxes longer saving more cash.
The goal is to have 100% of the loan forgiven, but if you can’t quite get there for some reason, don’t panic. Any non-forgivable amount is at 1% interest and payable over 2 years (or 5. years if you apply after the PPP Loan Forgiveness Flexibility Act is passed).. The only thing cheaper
Summary of Costs Eligible for Forgiveness:
Eligible Payroll Costs incurred during the 8- or 24-week Covered Period or Alternative Payroll Covered Period. For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period.
Eligible Non-Payroll Costs
- Covered mortgage obligations (not including any prepayment or payment of principal)
- Covered rent obligations
- Covered utility payments
All eligible non-payroll costs must incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Eligible no-payroll costs cannot exceed 40% of the total forgiveness amount.
- This application must be submitted to your lender. It may also be completed electronically through your lender. Your lender should let you know when they are open to accept forgiveness applications.
- At least 60% of the PPP loan must be spent on payroll costs to be eligible for any forgiveness.
- Your SBA PPP Loan Number was assigned by SBA at the time of loan approval. You may request this number from the lender if necessary.
- Your loan forgiveness will be reduced if you decrease your full-time employee headcount or if you decreased salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
- If you let an employee go then received PPP, if you offered to rehire them and they declined, this will not reduce your loan forgiveness amount so long as the offer and declination are documented. Please be aware, that if an employee declines an offer of employment because they make more money on unemployment, that employee then becomes ineligible for unemployment. You may want to share this with any employee that declines your offer of employment.
- The application allows for payroll costs both paid or incurred during the 8-week period. It is important that any expense is only counted once.
- If you’ve also obtained the EIDL loan, you can not pay the same expenses with that loan that you paid with your PPP loan.
Free Financial Consultation
Would you like to talk to a fractional CFO for personalized feedback and guidance or to ask a question? Preferred CFO is offering free financial consultations to help you better understand your financial situation, answer questions, and provide guidance on how to best provide for the future during this uncertain time. Click “Free Consultation” below to request your free consultation with a CFO.
About the Author
Jill Tavey is an experienced outsourced CFO with over a decade of high-level financial expertise and experience. Her ability to negotiate, make and maintain key relationships, and shape strategic direction has helped propel multiple companies through significant growth.
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