By: Jake Morris 7/29/2020
** If you are reading this and still have not applied for the PPP loan, there is still time. Currently, the application deadline is August 8, 2020, so please move quickly to apply and secure the funds needed to help your business. **
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. One provision in this Act was the Paycheck Protection Program. As most of us know by now, this set up a program to provide loans to small businesses affected by the current economic situation. The loan amount is determined to be 2.5 times monthly payroll and can be completely forgiven if the loan funds are spent on certain approved expenses laid out in the legislation (payroll, rent, utilities, mortgage interest).
On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 was passed and amended a few key points from the original legislation. Some of the highlights are noted below.
- Changed the covered period from 8-weeks to 24-weeks starting with new loans on June 5, 2020
- Changed the required percent of funds spent on payroll from 75% to 60%
- Extended the deadline to rehire employees from June 30, 2020 to December 31, 2020
- Extended loan maturity period from 2 years to 5 years
- Allows PPP recipients to participate in payroll tax deferral (previously they were ineligible)
I started at Whitley Penn as a senior manager in the WP Edge Group on March 16 (great timing, right?!). In my short time here, I have fielded many calls from clients looking for help in the constantly changing environment surrounding the stimulus related legislation (FFCRA and CARES Acts), most specifically the PPP loan. Our clients are focused on managing their businesses and streamlining their operations in response to the pandemic’s impact on the economy. They do not have time to follow all of the details around the everchanging requirements of the legislation. With the PPP window close to expiring and the forgiveness process starting, I wanted to lay out some of the most frequently asked questions that I have encountered over the last few months.
- With the Paycheck Protection Program Flexibility Act of 2020, the covered period changed from 8-weeks to 24-weeks beginning with loans approved after June 5, 2020. If I received my loan before this date, can I choose the 24-week window?
Yes. If you received your loan prior to June 5, 2020, you are given the option to choose the 8-week or 24-week covered period. You do not have to do anything to choose the 24-week period besides include the dates on your forgiveness application when submitted.
- If I have the 24-week covered period, can I submit my forgiveness application early?
Yes, see further detail in response to #3 below.
- When can I apply for loan forgiveness?
As soon as you’ve spent all the funds. Some lenders have opened up their forgiveness application, but I have heard that others plan to open them up in early August. Currently, the Small Business Association (SBA) has notified lenders that it will not begin accepting forgiveness applications until August 10th; however, I would recommend applying as soon as possible to get the process moving towards loan forgiveness.
- What are the major areas that affect loan forgiveness?
- At least 60% of the proceeds must be spent on payroll and the remainder on approved expenses (rent, utilities, mortgage interest)
- Maintain headcount at pre-pandemic levels (see #5 for exceptions)
- Cannot reduce individual employee compensation by more than 25.
- What are the safe-harbors and exceptions for my headcount calculation?
Even if your headcount is down throughout most of the covered period, if you return your headcount to pre-pandemic levels (specifically – February 15, 2020) by the earlier of the date you submit your forgiveness application or December 31, 2020, you will not receive a penalty on your forgiveness calculation.
- If you cannot bring up your headcount due to one of three scenarios below, you will not be penalized on forgiveness:
- Unable to rehire individuals or similarly qualified individuals before December 31, 2020
- Unable to return to the same level of business due to compliance with governmental orders (e.g. restaurants being limited to 50% capacity) by December 31, 2020
- If a current employee is fired for cause, or voluntarily resigns or requests a reduction in hours
6. Do any of the other stimulus provisions affect my PPP forgiveness calculation?
See two items below.
1. If you are claiming any credits under the Families First Coronavirus Relief Act (FFCRA) for qualified sick or family leave pay, you cannot consider those wages as part of your PPP expenditures.
2. If you received an SBA Economic Injury Disaster Loan (EIDL) advance, this amount is backed out from the forgiven amount of your PPP Loan. In other words, if you received a $100,000 PPP loan and a $5,000 EIDL advance, you would only be eligible for a maximum of $95,000 forgiven (assuming other requirements have been satisfied).
- If I’m self-employed or an independent contractor can I receive a loan and get it forgiven if I don’t have payroll?
Yes, you can receive a loan up to 2.5 times your 2019 monthly income (up to $100,000) and receive 100% forgiveness assuming you choose the 24-week covered period via the Owner Compensation Replacement.
- I have already received a PPP loan. Can I apply a second time?
No, this is currently not allowed. There are PPP funds remaining and Congress has had preliminary discussions about opening up applications to second time participants, more specifically tailored to smaller business who have been hit the hardest; but at this time, nothing has been passed. Stay tuned!
- Are there other options available to me?
- See options below.
- SBA Economic Injury Disaster Loan (Link Here): This is not forgivable like the PPP, but it offers fast approval and very favorable terms if needed for cash flow.
- Payroll Tax Deferral: CARES Act allows businesses to defer their employer share of social security taxes (6.2%) from March 27, 2020 – December 31, 2020. These are due 50% on December 31, 2021 and 50% on December 31, 2022. This will be calculated on your quarterly Form 941; and even if you have been remitting your Social Security taxes, you can apply them as a credit going forward and start deferring your remittances now.
- See options below.
This is by no means a conclusive list of all the questions that I have received over the last few months, but a select few of the most frequent and relevant. As you navigate the options available to you, and most specifically the PPP forgiveness application, please reach out to me if you have any further or more specific questions.
PPP Loan Forgiveness Application: Link Here
PPP Loan Program FAQs: Link Here