Monday 06/08/2020

Paycheck Protection Program Flexibility Act

More changes, but more flexibly! Now signed by the President, the PPP Flexibility Act protects and promotes the original intent and goals of the Paycheck Protection Program: to help borrowers reach full, or almost full, loan forgiveness. While things are still not yet final, here’s what we know right now:

The Changes:

  • The Act changes the 75% payroll expenditure requirement to 60%, allowing borrowers to use 40% of funds on other allowed uses such as rent and utilities.
  • Borrowers can spend their funds over a period of 24 weeks, extended from an 8-week covered period. This however does not change your loan amount.
  • The deadline to restore workforce levels now stands at December 31 rather than June 30, and allows additional exceptions if certain employees are not replaced.
  • For any portion of the loan not forgiven, borrowers now have five years to repay instead of two. The one percent interest rate still remains.
  • Businesses would now also be able to delay payment of their payroll taxes, even if they received PPP funds.

Our Recommendations:

  • Continue to diligently and properly track all off your expenses. We cannot stress this enough.
  • If you have not yet completed your bank’s forgiveness application, hold off until the updated version is released.
  • For our clients who we have been working through forgiveness calculations, we will revisit and revise based on the latest changes.

Outstanding Questions:

  • Gross Comp Cap: With the extension of the covered period, does this change the compensation “cap”? On the issue of the compensation “cap” of $15,385 (8/52 x $100K) and whether the formula would now be based on 24/52, we are unsure at this point if this will change or remain at the current $15K cap.
  • Covered Period: The covered period will now apparently be an “either/or” 8 weeks or 24 weeks, and borrowers cannot, for example, choose a 10 week period. Regarding if there is a specified time period in which the borrower must elect the 8 week period if that is preferred, we are hoping this will be addressed on the revised Forgiveness Application.
  • Deductibility of Expenses: As it stands today, expenses paid with forgiven PPP loan proceeds are still not able to be deducted by the business. We remain hopeful that additional guidance will be provided on this issue.
  • Forgiveness Threshold: As it stands, 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. We are hoping that changes will be made to restore the sliding scale.
  • It is expected that the SBA will issue an additional Interim Final Rule (IFR) that incorporates the Congressional changes and issues.

We are working to update our Loan Forgiveness Calculation Template with the outlined changes. As always, please don’t hesitate to reach out to us with any questions. Our Coronavirus Crisis Team can be reached here: ckcrisisteam@corrigankrause.com

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