The PPP Loan – an Update

A lot has changed since our initial blog post on the Paycheck Protection Program that was signed into law on March 27, 2020. In order to give you the most up-to-date information, I am going to touch on the most important updates in this article and provide trusted resources for you to research further. Here are the most important changes in the PPP loan application and forgiveness process. At the end I’ll touch on what is potentially on the horizon in terms of legislation.

What’s NEW?

• The deadline to apply for the actual PPP loan has been extended to August 8, 2020.
  • The maximum PPP loan amount is average monthly payroll costs x 2.5, with an overall maximum of $10 million.
  • We have found that PayPal is the best loan provider at this time: https://www.loanbuilder.com/ppp-loan-info
  • The definition of payroll costs has not changed since our last article.
• The deadline to apply for PPP loan forgiveness has been extended from 8 weeks to 24 weeks.
  • You, the borrower, now have a choice to use an 8-week period for forgiveness or a 24-week period. A borrower may submit a loan forgiveness application at any time – even before the covered period is up.
• The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages (and other debt obligations), rent (of both real and personal property), and utilities incurred or paid during the covered period. At least 60% of the forgiven amount must have been used on payroll costs. This is starkly different from the original 75% number.
  • As a general rule, a nonpayroll expense is a qualifying expense if you would be able to properly deduct it on your tax return, either in full or at a percentage.
• Loans issued prior to June 5, 2020 have a maturity of 2 years. Loans issued after June 5, 2020 have a maturity of 5 years. The interest rate is 1%.
• Loan payments will be deferred for 6 months.
  • This means that at the end of your 24-week period, you will be required to make a repayment if you do not apply for forgiveness before the 24-week period is up. We recommend applying for forgiveness early enough to avoid your first monthly payment.
• Forgiveness will be reduced if you did not maintain your average full-time equivalent (FTE) employee numbers or the average salary dipped below 25% of the average salary from the covered period of your choice:
  • Either the period February 15, 2019 to June 30, 2019 OR
  • the period January 1, 2020 to February 29, 2020
  • Seasonal employers have a different covered period
• If you meet any of the safe harbors for rehiring, a reduction in your average full-time equivalent employee numbers or salary below 25% will not reduce your forgiveness. Safe harbors include:
  • Eliminating the reduction by December 31, 2020
  • Making a good faith offer for employment to an employee that is refused
  • Any reduction during the covered period that happened due to:
    • Being fired for cause
    • Employee voluntarily resigning
    • Voluntarily requested a reduction in their hours
• Any EIDL advance (not the loan, simply the advance) will reduce the amount of PPP that can be forgiven. In addition, any EIDL advance will be included in gross income.
• You can now elect an alternate payroll covered period if the date you received the loan does not line up with your regular payroll period. I don’t foresee this being necessary as the rules state that the payroll costs “paid or incurred” are eligible or forgiveness. This refers to payroll costs you are liable for when the covered period has terminated, but you have not yet paid making an alternate period obsolete.
• There is a simplified loan application called the SBA Form 3508 EZ. You can use this streamlined application if you are one of the following:
  • A self-employed individual who had no employees at the time of the PPP loan application and did not use any employee salaries in the computation of your PPP loan amount OR
  • A borrower who did not have any reduction in FTE employees or a reduction in the annual salary of employees of more than 25% during the covered period (or alternate payroll covered period). This option works for either of the chosen comparison periods:
    • the period February 15, 2019 to June 30, 2019
    • the period January 1, 2020 to February 29, 2020
• Additionally, Forbes recently recommended a free, new online platform at www.PPPForgivenessTool.com to help any business that took out a PPP loan streamline their forgiveness application process. This can be used by any PPP loan borrower, not just the EZ form recipients detailed above. We recommend waiting until final guidance surrounding forgiveness calculations is issued to use this resource.

There has been a plethora of changes since the original CARES Act was passed back in March. We fully expect more legislation to be rolled out in coming months. Two items at the front of our mind are:

1. Currently, any amount of the PPP loan proceeds used for qualifying costs are not deductible against business income if those loan proceeds are forgiven. While the PPP loan is not expressly considered income, it may in fact be treated that way if the expenses paid with PPP loan funds are nondeductible. While we may see congress pass legislation reversing this opinion, it is very important to plan for the 2020 tax year with higher-than-expected net income.
   1. This higher-than-expected income is extremely important if you have an Advanced Premium Tax Credit (APTC) through the health insurance marketplace. If you have received a 1095-A in the past, it may be worth reviewing if forgiveness is worth the APTC repayment cost.
2. There is discussion around making forgiveness even easier for borrowers who received a PPP loan of $150,000 or less. The rumor is that small borrowers could get automatic forgives of their loans, no application needed, if they self-certify that the funds were used appropriately, and employment levels and salaries did not drop during the covered period. This is one of the main reasons it may be a good idea to hold off on the forgiveness application process until final rules have been issued.

Please review the resources below for more information on the PPP loan and forgiveness.

PPP Loan Forgiveness Applications and Instructions:

PPP loan forgiveness | U.S. Small Business Administration (sba.gov)

Forbes Explains PPP Changes

https://www.forbes.com/sites/allbusiness/2020/06/25/sba-issues-new-ppp-loan-guidance/#d55cc067d68d