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Changes to Paycheck Protection Program Loan Forgiveness

As part of the ongoing evolution of the Paycheck Protection Program (PPP), additional policy adjustments and complementary legislation have just been approved that will ease the burden on small businesses who feared the original loan forgiveness requirements were too difficult to meet.

As you may know, PPP is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. The SBA will forgive loans if certain conditions are met, including retaining employees and spending the funds on qualifying expenses. To date, Padgett has assisted 889 small business clients in receiving more than $58 million in PPP loans.

The Paycheck Protection Flexibility Act, a bipartisan piece of legislation signed into law by the president on June 5, 2020, eases some of the restrictions to qualify for loan forgiveness and adds much-needed leniency to the program. If you’re a small business who has made use of PPP, here are some notable highlights:

  • Current borrowers can now choose to extend the eight-week covered period to 24 weeks or keep the original eight-week period. New borrowers will have a 24-week covered period. This added flexibility should make it easier for more borrowers to reach full, or almost full, forgiveness.
  • Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full loan forgiveness for PPP. This must be done by Dec. 31, 2020, a change from the previous deadline of June 30.
  • The payroll expenditure requirement drops to 60 percent (down from 75 percent). Although it appears to be an oversight, the law requires borrowers to spend at least 60 percent on payroll or none of the loan will be forgiven. We believe this wasn’t the intention and are hopeful a technical change to restore the sliding scale will be made.
  • Workforce reductions no longer necessarily result in reduced loan forgiveness. An employer can be exempt from the associated loan forgiveness reduction if they can document in good faith that either they couldn’t rehire terminated employees and hire similarly qualified employees before Dec. 31, 2020; or, were unable to restore business levels to Feb. 15, 2020 levels due to COVID-19.
  • New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
  • The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.

If you haven’t considered applying for a PPP loan, act fast as the deadline to apply is June 30. At Padgett, we’re ready to assist you with any questions about calculating your maximum loan amount or estimating your loan forgiveness, along with any other questions that you may have as you begin the application process.

Do you have the support you need to manage your small business bookkeeping? Schedule a 30-minute appointment to speak with a local small business adviser.

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