Under a new federal
law effective June 5, 2020, the requirements for PPP loan forgiveness have been
relaxed in favor of small businesses.
The new rules are:
- More time to use the loan: Instead of having to use your PPP loan in the 8 weeks after you get it, the new law gives you either 24 weeks or until the end of this year (whichever is earlier) to use your PPP loan.
- More flexibility on how you spend your loan: The old PPP rules required you to use at least 75% of your loan on payroll costs (salary/wages, health insurance, retirement, paid leave, and unemployment taxes) and no more than 25% on certain non-payroll costs (rent, utilities, and mortgage interest). The new rules require you to spend only 60% of your loan on payroll costs and allow up to 40% on the approved non-payroll costs. This is a very helpful change for small businesses who were not able to reopen but who were still obligated to pay their rent and utilities.
- Longer to pay back your loan: Any portion of your PPP loan that is not forgiven will be converted to a loan. New PPP loans approved after June 5, 2020 will be for 5 years. Existing PPP loans are for 2 years, but you can negotiate with your lender to change it to a 5-year loan.
- No penalties for reducing employee count and/or employee wages: Your PPP loan forgiveness can be reduced if you have fewer employees or lower employee salaries after receiving your loan than you did before the pandemic. To read more about PPP loan forgiveness reduction, click here and scroll down to #3) Forgiveness amounts can be reduced two ways. Under the new rules, you now have until December 31, 2020 to restore employees and wages to your pre-pandemic levels and still get loan forgiveness.
The new law allows you to get full forgiveness if you can document that you are unable to re-hire employees who were on your payroll as of February 15, 2020 and you can’t hire similarly-qualified individuals to fill their positions by December 31st.
Also, if you can document that you can’t go back to your pre-pandemic staffing level because your business is complying with worker or customer social distancing measures, your loan forgiveness will not be penalized.
We expect a lot more guidance from the Small Business Administration on this topic in the near future.
- Payroll tax deferral: Businesses who receive PPP loan forgiveness are now eligible to defer the employer’s share of employee payroll taxes over the next two years. See FUBA’s coronavirus resources page for an explanation of how this payroll tax deferral works.