The SBA and Treasury Department have released its first update to the PPP rules liberalizing many of the basic provisions and terms that PPP borrowers struggled with. In my opinion, these rules makes it much easier to obtain 100% forgiveness for many PPP loans, but its not a slam-dunk and the business still must met certain hurdles and avoid many traps for the unwary.
Below are some of the key changes to the “Revisions to First Interim Final Rule” that is a direct result to the PPP Flexibility Act that was signed into law on June 5, 2020.
1- The “Covered Period” in which to spend the PPP money
has been extended to 24 weeks from when the date of the PPP loan was disbursed
but no later than December 31, 2020. Previously, the covered period was 8 weeks. This is a very favorable provision as many businesses weren’t able to spend the PPP money on payroll as many businesses were closed or operating at reduced payroll levels during the covered period.
minimum of 60% of forgivable PPP fund must be used on payroll costs
with a maximum of 40% used on non-payroll costs. This allows many businesses to spend more of the PPP monies on non-payroll costs.
3- The Wages Reduction and Full Time Equivalent
Safe Harbor provisions can be restored by December 31, 2020 rather than June 30, 2020
. This allows businesses to meet the safe harbor rules to obtain 100% forgiveness. Many businesses will need to rely on the safe harbors so they can get full forgiveness of the PPP loan.
4- The PPP loan maturity term has been extended 5 years. The 5 year term applies to any PPP loan that originates on or after June 5, 2020. For any loan before June 5
, that b
orrower and lenders may mutually agree to extend the 2 year loan term.
Also, any PPP loan payments cannot start earlier than 10 months after the end of the covered period or when the SBA remits the loan forgiveness amount to the bank. Previously, the loan payments commenced 6 months from the loan origination date.
5- The Employer FICA deferral period for PPP recipients can continue to be deferred until December 31, 2020. Previously, the FICA deferral stopped when the bank granted loan forgiveness. Any business that is paying the employer FICA expense should consider the benefit of this interest free loan from the federal government.
6- The rules relating to hiring employees for purposes of satisfying the Safe Harbors in bullet 3 above have been eased.
7- Lastly, the SBA repeated the importance of the use of the PPP loan. The certification will include that the PPP funds will be used to retain workers and maintain payroll, pay rent, utility or mortgage interest payments and the signing person understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold that signing person legally liable for fraud. Accordingly, it is highly recommended (not required) to
hold the PPP money in a separate bank account and disburse the PPP funds only to pay for allowable costs
While these new provisions are welcomed by advisors and businesses, please be very careful. We are here to help.
Best to all and be safe.
Barry L. Sunshine, CPA | Senior Tax Partner
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