Wednesday evening, the Senate unanimously passed legislation that was passed in the House last week 417 to 1. This legislation is expected to be signed by the president today. It will allow more flexibility for businesses that have borrowed (or will borrow) under the Payroll Protection Program (PPP), especially for those in the restaurant and hospitality industries. The bill includes the following updates to the PPP loan program:
1. Changed the 8-week covered period to the earlier of either 24 weeks or December 31, 2020. Note: they do allow you to keep the 8-week covered period for loans issued prior to enactment at the election of the borrower.
2. Changed the 75% that was required to be used for payroll costs to 60%, allowing 40% to be used on the non-payroll qualifying expenses, up from 25%. The 60% is a cliff amount — so, if payroll costs are not at least 60% of the total loan proceeds during the covered period (24-week period, December 31 or 8-week period), then none of the loan would qualify for the forgiveness.
3. Changed the rehire provision from June 30, 2020 to December 31, 2020 and added additional flexibility for the following situations:
4. The repayment of the portion of the loan that is not forgiven will be a minimum of five years for loans closed after the date of enactment, compared to the SBA’s current rule of a two-year payback. For prior loans, borrowers will need their lenders to mutually agree to the change the repayment term to a period in excess of the original two years.
5. Changed the deferral period of principal and interest payment from the current six months to the date on which the amount of forgiveness determined under the rules is remitted to the lender from the SBA.
6. If the borrower decides not to apply for forgiveness or fails to apply within 10 months from the end of the covered period (which will be 10 months from the earlier of 24 weeks after receiving the loan or December 31, 2020), then the principal and interest payments will start 10 months after the end of the covered period.
7. Removed the restriction of participating in the deferment of the employer portion of the social security payroll tax if you received a PPP loan. The IRS has previously clarified that you could defer these taxes up to your forgiveness date. Now you can defer through December 31, 2020 and pay the balance deferred 50% on December 31, 2021 and 50% on December 31, 2022.
8. Missing from the Act is a provision clarifying the expenses for which the loan forgiveness amount is based would be deductible if the loan forgiveness occurs. Perhaps this provision will resurface in a more comprehensive bill, enacted before year end or Treasury will soften its stance on the issue based on significant commentary from both Congressional parties.
9. There is roughly $130 billion dollars still available under the PPP program to be loaned. Small businesses that have not applied for a loan as of yet should consider the above modifications in determining whether or not an application would make sense at this time. Many businesses in the restaurant and hospitality industry previously passed up application due to the original limitations on use of loan proceeds and the short timeframe in which to utilize the funds. This legislation significantly eases those restrictions.
Contact Adam Hill at ahill@cohencpa.com or Dave Sobochan at dsobochan@cohencpa.com to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.