PPP Loan Forgiveness: The Ultimate Guide

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PPP Loan Forgiveness Rules Update: The 4 Changes To Know Before You Apply

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PPP Loan Forgiveness Update

The PPP Flexibility Act introduced new updates to the PPP loan forgiveness rules. Lets break down to what it all means and what we need to do right now.

Do you remember all that information that came out a few weeks ago about the new rules on PPP? Well guess what? It’s all changed again. So if you did spend hours trying to work out your PPP loan forgiveness, gathering paperwork and generally rushing around trying to get it all in order, you may need to now hit the brakes and maybe take a second look at your documents!

PPP Forgiveness and The Future

The deadline to apply for the PPP was August 8, 2020 and banks are now starting the forgiveness process. Should you start applying for forgiveness or should you wait? Find the answers here!

Read More »

PPP Forgiveness and The Future

The deadline to apply for the PPP was August 8, 2020 and banks are now starting the forgiveness process. Should you start applying for forgiveness or should you wait? Find the answers here!

Read More »

There are new improvements and new changes to PPP loan forgiveness, so lets take a look and find out what it all means and what we need to do right now. We can only hope and pray that this will be the last upgrade to this well intentioned but often chaotic bale out program.

Paycheck Protection Program

The Payroll Protection Program or PPP was bought in on the 27th March 2020 in order to protect staff wages that would otherwise have not been paid and in order to protect small business owners. The idea was that once the COVID crisis was over, businesses would still be fully functional with an existing workforce that hadn’t starved in the meantime.

PPP was designed to run over an 8 week period and was designed as a loan to protect the payroll. Operated by the Small Business Administration (SBA) using a range of approved lending establishments such as banks, from the beginning all borrowers were advised that the situation would be reviewed as the crisis continued.

Loan Forgiveness for borrowers who fulfilled the criteria has been a major announcement for businesses of all types.

In general this was fulfilled if;
• 75% of the loan was used to fund the payroll over an 8 week period ,
• that employees were paid at the same rate as prior to the crisis
• that only up to 25% of the loan was used for necessary business payments such as utilities or rent.

There were other clauses and exemptions but in general this was the gist of the eligibility of claiming full forgiveness on the loans.

The Paycheck Protection Program Flexibility Act (PPPFA)

This new ruling was passed more or less unanimously by both houses of Congress and signed into law on June 5th. The Treasury Department then released a document called the Paycheck Protection Program – Revisions to First Interim Final Rule, which outlined how this new law should be interpreted. This happened on June 10th

Essentially the PPPFA has eased restrictions on how the loan should have been spent meaning that it makes full loan forgiveness far easier to claim.

The New Loan Forgiveness Rulings

1. The Forgiveness Window has been extended.

With the earlier PPP forgiveness program, business owners were encouraged to act fast (before June 30th at the latest) to ensure that their claim could be processed. This has now been extended to up to 10 months following the covered period.

2. The new Payroll vs Other expenses ratio

Previously the old rules around loan forgiveness worked to a 75/ 25 percentage. To claim you had to prove that 75% of your loan was spent on maintaining your payroll and that you only spent 25% of the sum on other business expenses such as utilities and rent.

Now these figures have been widened to 60/ 40. This means to receive full loan forgiveness, a business owner must show that 60% of the loan has been spent on the payroll and up to 40% has been spent on other business expenses that were not necessarily payroll related.

Business owners who have spent less than 60% of the loan on the payroll will also be eligible for partial loan forgiveness.

What types of payroll costs are eligible?

Payroll protection doesn’t just cover weekly pay. There are other payments that also qualify as being a legitimate payroll expense and will count towards your 60%
These include;
• Payment of healthcare benefits, paid sick leave, maternity benefit, leave and holiday pay and insurance premiums.
• Salaries and wages including commissions such as with people who work in sales, and tips. This is capped at $100,000 yearly pay and calculated pro rata
• Bonuses , hazard pay or similar industry payments that make up many employees regular pay check
• State and local tax payments.
Non Payroll costs are now also forgiven if you can prove that you spent no more than 40% of the entire loan. Eligible non payroll costs include;
• Rent and leasehold payments
• Interest payments on mortgages
• Utility bills
• Interest on any other debt that was in operation before February 15th 2020

3. The new deadline for coverage

Although the original PPP requirements only covered expenses for 8 weeks, this has now been extended to 24 weeks. Borrowers will have the choice of using the PPP loan for 8 weeks as before but can also use the money with greater flexibility without risking missing out on loan forgiveness. The deadline for the 24 weeks is December 31 2020 so there is far more leeway than before.

This increased time period is useful for businesses which are still closed such as restaurants and gyms. However you may need to consider your options carefully.

If you do opt for working outside the original 8 consecutive week’s period or you have already received your PPP loan, you may find that you have to keep on staff for longer than you can afford. To qualify for full loan forgiveness you may be required to maintain employment levels and wages throughout the 24 week period. Many business owners have opted for the 8 week coverage for this reason.

4. The new time frame to rehire employees and restore wages

The whole point of PPP was to maintain employment levels and wages and the previous rules on PPP forgiveness were pretty strict when it came to rehiring people and about the wages they should have been paid throughout the period.

However there was a loop hole that said that if business owners rehired staff by June 30th and so maintained their headcount, they could qualify for full PPP loan forgiveness. In addition, if staff members were receiving less than 75% of usual of the usual salary, increasing this and putting it back to pre lockdown rates by June 30th would help you qualify for full forgiveness.

This time frame to all this has now been extended. Under the new PPPFA rulings, this deadline for rehiring and restoring salaries has now been moved back from June 30th 2020 to December 31st 2020.
Strangely this point about restoring salaries to pre lockdown rates has not been outlined in the new PPPFA rules. We can only assume that it is still set at 75% as we have heard nothing to suggest otherwise. It is important to check this and wait and see if this is mentioned in any later updates.

Maintaining the Headcount

The old rules on PPP forgiveness were all based on maintaining the headcount of a business. Business owners were required to calculate the amount of employees by checking through payroll records for the same period in 2019 (Feb 15th through to June 30th 2019.) This figure was divided by the number of employees over the 8 week period following the initial PPP loan.
They were then advised to compare this figure with the number of employees between January 1st 2020 and February 29th 2020.

This relatively simple counting exercise was designed to demonstrate that employee levels had not changed and if the sum total was equal to or larger than 1, it demonstrated that you had successfully maintained your staff levels throughout and that you would qualify for full PPP forgiveness.

If the number of employees had gone into negative figures so staff levels were not maintained, under the old PPP rulings forgiveness was calculated proportionally. There were exemptions and exceptions to these rulings such as staff losses beyond your control. The same rules apply now but PPPFA has widened the exemptions by adding two clauses.

New Clauses to Maintaining the Headcount.

Now you are allowed to treat unfilled positions as if they were new, as long as they are filled by the January 31st 2021 deadline. In addition the special circumstances of COVID are taken into consideration when calculating your business staffing levels. This means that if you cannot return to the same level of business activity of prior to February 15th 2020 because of social distancing rulings and safety requirement as outlined by Centers for Disease Control, Health and Human Services, or Occupational Safety and Health Administration, you are not expected to have maintained the headcount. This refers to any ruling issued between March 1, 2020, and December 31, 2020.

In addition, you are not required to rehire the same employees who worked for you prior to February 15th 2020 if you are unable to do so. These circumstances should be documented by the business owner as written evidence that he or she has acted in good faith.

How to apply for PPP loan forgiveness.

To apply for PPP loan forgiveness, you can download the Loan forgiveness application form here and via the SBA website. There are no major changes to this process since the last rulings and in fact, for most business owners, the new PPPFA system has made applying for forgiveness much easier.
The parameters of payroll expenses and non payroll expenses have been widened so if you have already spent some of your PPP on utilities for example, you will no longer be made to pay for this mistake.
In addition there is much more time and flexibility to claim and in regarding the period of cover. No two businesses are exactly the same so with this greater freedom of how the PPP money was actually spent, as long as you can document this, you should be able to claim full forgiveness on your loan.

Repaying PPP for those not eligible

Not everyone will be eligible for full loan forgiveness. However with the relaxation of some of the qualifying rules, and especially the 60/ 40 payroll rules, it is now far easier than it was. If you do have to pay back some or your entire PPP loan, this time period has also been extended. The loan has now been extended to reach maturity in 5 years rather than the 2 year period which was outlined initially.

The date that the repayments will start will be set by the SBA once you have applied for forgiveness and have received any remittance owing to you. You are not required to start paying back PPP before you have gone through the whole forgiveness application process. It is important to act fairly quickly, even although the time has been extended. If you do not apply for loan forgiveness within 10 months, you will automatically be required to start making repayments on exactly 10 months from the date you first applied for PPP.

How To Get Help With Documentation, Application or Repayment

Missteps in maintaining documentation or in applying can be costly. If you need help to make sure that you avoid such mistakes, our experienced CPAs at Valor CPAs can help. Schedule a FREE consultation call here with one of our experienced CPAs at a time convenient to you.

Something Wasn't Clear?

Feel free to contact me, and I will be more than happy to answer all of your questions.

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