The deadline to apply for a loan under the new PPPFA is June 30, 2020. Here’s what SMBs need to know before applying.
Here's what you need to know:
- The PPPFA, signed on June 5, outlines changes to the original PPP and provides more options for business owners to participate in the program
- Some key changes to the PPP? Allocation of loan funds, employer eligibility, extending loan repayments, deadline changes
- The new rules also allow borrowers to treat positions they were trying to fill before February 15, 2020 as eligible for loan forgiveness under the program
- The SBA can now provide loans to businesses that COVID-19 did not directly impact — such as SMBs that didn’t close due to the pandemic, but had losses and layoffs
- PPPFA allows businesses that have already received a loan under the original PPP program to apply to extend their terms
To address concerns over the original Paycheck Protection Program, signed by the administration in March, an update was recently updated to increase flexibility and participation by small and medium-sized businesses. The Paycheck Protection Program Flexibility Act, signed on June 5, outlines changes to the original Act and provides more options for business owners to participate in the loan program necessitated by the COVID-19 pandemic.
What is the Paycheck Protection Flexibility Act?
The PPPFA reforms the original PPP in several ways to better meet the needs of businesses trying to recover from mandatory shutdowns and work slowdowns.
Extensions for businesses to repay loans they receive have been added along with a longer period of time to rehire employees that were laid off or furloughed. Other details aim to address specific issues employers brought forward following the original PPP.
What are key changes to the PPP?
In response to demand from SMBs, the original PPP sees many amendments. They include:
- Allocation of loan funds
- Rehiring original workers
- Employer eligibility
- Longer loan use
- Extending loan repayments
- Expansion of rehires to include some new hires
- Deadline changes
How can businesses spend loans received?
Beginning with allocation of funds received, the PPPFA decreases the percentage of loan funds that must be allocated to payroll only. PPP required employers to spend 75% of their loans on payroll. The PPPFA lowers that amount to 60% of the total loan required for payroll. The other 40% can be used to pay for other approved expenses, including include rent/mortgage payments, utilities, supplies, etc.
PPP required employers to spend 75% of their loans on payroll. The PPPFA lowers that amount to 60% of the total loan required for payroll.
How much time do I have to spend the loan funds?
The new PPPFA rules allow employers more time to spend any funds they receive through the Small Business Administration loans. Originally, employers could only have 8 weeks to utilize the loan, the majority of which was for restoring payroll for employees. Under new guidelines, employers have a total of 24 weeks from the date of the loan to use the funds.
Is there an extension for rehire deadlines?
The revised Act extends the deadline for rehiring employees and restoring their wages past the original June 30 due date to December 31, 2020. For businesses beginning to reopen and rehire employees, this extension will provide more wiggle room to get up to speed. The new deadline applies to laid off and furloughed workers.
Are positions we were trying to fill before COVID-19 covered?
The new rules allow borrowers to treat positions they were trying to fill before February 15, 2020 as eligible for loan forgiveness under the program.The new rules allow borrowers to treat positions they were trying to fill before February 15, 2020 as eligible for loan forgiveness under the program. Employers will need to document they were trying to fill positions pre-shutdown or slowdown. If they’re able to hire for the open positions before December 31, salaries for those are eligible for loan forgiveness.
What if we can’t get up to full staffing levels post-COVID-19?
For many businesses, revenue will not support fully restaffing their organization. Under the PPP, businesses were required to get back to fully staffed levels or risk the amount of loan forgiveness would be diminished.
Under the PPPFA, employers who are unable to rehire employees on staff before February 15, or to hire similarly qualified employees, are still eligible for loan forgiveness. Even if the company is unable to hire through December 31, forgiveness should be granted. However, this only applies if the slowdown is directly related to or required under guidance of federal agencies because of COVID-19. General market sluggishness will not trigger eligibility. This may be especially important for restaurants who may have a requirement to continue to minimize capacity until the threat of COVID has passed.
Are there changes for seasonal employers?
The PPPFA now allows businesses to calculate seasonal employee wages based on their average monthly payroll before February 15, 2020 to include in the loan forgiveness program. For employees whose “season” doesn’t typically start until the summer months, employers can calculate the average of an 8-week period between February 15 and June 30 of 2020.
Who is eligible for the PPP loans?
New in the PPPFA is that the SBA can now provide loans to businesses that COVID-19 did not directly impact. These can include businesses that did not close due to the pandemic, but had losses and layoffs due to economic and supply chain interruptions.
Is there money remaining in the PPP?
Over $125 billion is available in the PPP for SMB loans. The SBA is encouraging employers to look to their site for detailed information on funds available and how to apply.
Will there be a new loan application?
The SBA will keep all forms and applications current on their website.
What if I already received a loan under the PPP?
The PPPFA rules can apply to businesses that have already received a loan under the original PPP program. Businesses should verify with their lender or local SBA authority if they choose to extend the “covered periods” as outlined in the original loan. Make notifications in writing that you wish to extend the terms of your loan under the new PPPFA guidelines. Also, request verification in writing from your lender that you have approval. If you do not make the request, all original loan deadlines and requirements will apply.
Make notifications in writing that you wish to extend the terms of your loan under the new PPPFA guidelines. Also, request verification in writing from your lender that you have approval.
How long do I have to repay the loan?
The new guidance increases the time businesses have to repay any part of the loan that was not forgiven. It has increased from 2 years to 5, and the interest rate remains at 1%.
What about payroll taxes?
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, businesses were also granted some tax relief due to the pandemic. Employers who did not apply for and receive a loan under the PPP qualified for a refundable payroll tax credit. The credit is 50% for the $10,000 of each staff member’s compensation, including health benefits, from March 13, 2020 through December 31, 2020.
Under the PPP and the PPPFA, employers can defer paying only the business’ portion of Social Security tax due (6.2% of employee gross wages) until December 31, 2021. Employers must pay the employee portion of Social Security taxes on time. The remaining employer-portion payment is due by December 31, 2022.
When are applications closing for the PPPFA?
The deadline to apply for a loan under the new PPPFA is June 30, 2020. SMBs and sole proprietorships should visit the SBA website quickly to learn how and where they can submit an application in their area.
As the nation rebuilds and recovers, SMBs may expect more revisions, expansion of loans, and tax relief from the government. Workest will keep you updated on any changes coming your way.