Last Friday the President signed the PPP Flexibility Act into law. In many ways this change to The CARES Act adds clarity and yet even more confusion to the PPP Loan. It’s main changes are as follows…
Repayment and Payment Deferral Terms
– The Loan Repayment Term has changed from two years to five. This does not mean that existing loans have changed. If you have already received your loan, the loan doc’s that you signed did not magically change overnight. It just means that new PPP Loans will now have a five year repayment period. You may or may not be allowed by your existing lender to extend the repayment period to five years, but that depends on your lender.
– Payments of principal and interest were originally deferred for six months. That deferral period is now extended to the date that the borrower will receive loan forgiveness from the lender. If the borrower does not apply for loan forgiveness, then the deferral goes until ten months after the loan was funded.
– The biggest change here is to the payroll / operating expenses payments that are allowed in the forgiveness model. Originally it was 75% payroll and 25% operating. It is now 60% payroll and 40% operating.
– But now you may not be eligible for forgiveness at all. The new act states, and I quote,
“to receive loan forgiveness, a borrower SHALL use 60% of the loan amount for payroll costs.” Okay. Here we go. This means that if you don’t use 60% of the loan amount for payroll costs, then NOTHING WILL BE FORGIVEN.
What is not clear is what happens if you received your loan prior to the enactment of this flexibility act. You may certainly elect to use the original eight week period. But if you make that election, are you still under the old rules?
It is obvious that we are going to need the SBA to come back in to interpret the rules in this regard.
– This new act extends the loan forgiveness period to twenty-four weeks from eight or December 31, 2020, whichever date is earlier.
FTE / Wage Reduction Safe Harbors
– Previously, if you restored your FTE Headcount and wages by June 30, 2020, you would not have a reduction in forgiveness. This is now extended to December 31, 2020.
– Another new safe harbor on forgiveness is if you try to hire back an employee to resume a position that they held prior to February 15, 2020, the employee refuses the position, and you are unable to find another quality rehire, then this is excluded from the FTE Forgiveness Equation.
How this will ever be administered is beyond my understanding. How do you document the fact that you can’t find a qualified replacement? I’m sure that there will be additional guidance on this issue from the SBA as well.
– If you are unable to return to the same level of business as prior to February 15, 2020, due to a shutdown from various governmental agencies, then supposedly again, you can still achieve forgiveness of the PPP Loan.
Loan Review Guidance
– The SBA may review any loan at any time for any reason. They have already uncovered several instances where PPP money has been used either improperly or for criminal activities.
– Borrowers are required to maintain PPP Loan Documentation for a minimum of six years
– Shareholders, Partners, and Members of an entity where the SBA has deemed the entity as not being entitled to receive a PPP Loan are no longer protected by The CARES Act’s non-recourse provisions. They can now come after you personally in certain instances for non-repayment of these loans.
– We can now have a lender ‘s decision to not forgive a loan reconsidered by the SBA. This “Appeals Process” may come in handy with certain lenders.
In general, this whole thing just got a lot more complicated. Now, there are multiple roads to loan forgiveness. If you need help in consulting on your loan, and preparing the loan forgiveness paperwork, please go to the following page and click the sign up now button.
Let me leave you with this one thought.
I keep wondering what’s next. Back in March this all started with a Stay-At-Home Order. Last week we had mass demonstrations and looting. This nightmare has resulted in I don’t know what percentage of businesses that will never reopen, and another large percentage of businesses that will ultimately fail.
Is the resulting economy the last of the Unholy Three-In-One?
If it is, then you had better get ready. Begin your preparations now. Take a look at your income / operating costs, and make whatever adjustments that are necessary for you to continue operations. Don’t wait. Do it now.
The Entrepreneurs who are most prepared, are the ones who will profit the most in the times to come.
If you need help in your calculations, contact us today. Whatever your needs happen to be, know that we are here to help you.
Accounting Solutions Ltd. stands ready to complete its mission and purpose of protecting you, your family, and your business. If there is ever anything that you need, whether you are a current client or not, please don’t hesitate to contact us. I’m here and I remain,
Accounting Solutions Ltd.
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