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For those who received a Paycheck Protection Program (PPP) loan, it’s been challenging to keep up with the constant guidance and changes. It started with the application process, transitioned to loan qualification, and is now focused on loan forgiveness. As more details, including the forgiveness application, have been issued, borrowers continue to pose new questions about how rules and regulations apply to their situation. A feeling of confusion and a sense that the current program may need to be changed is voiced among loan recipients. A poignant example is the IRS ruling that any expenses incurred from forgiven PPP funds would not be deductible. Since then, there has been a coordinated effort in Congress to make changes to the program. To expedite change, the Paycheck Protection Flexibility Act of 2020 (the Act) was introduced on May 12, providing for immediate changes to the PPP loan program. To help clients, prospects, and others, JLK Rosenberger is providing a summary of the proposed changes below.
- Extended Covered Period – There has been a concern on Capitol Hill that the 8-week timeframe does not work for those only allowed to open their business under very restricted conditions. PPP loans were designed to provide relief to businesses and fund them through the entire emergency. The Act proposes an extension of the Covered Period to 24 weeks and a corresponding change from the June 30, 2020, deadline to December 31, 2020.
- Elimination of the 25% Non-Payroll Expense Restriction – While the primary concern of the program is to fund businesses to retain employees, there are concerns about the ability to manage fixed expenses. Under current rules, borrowers are required to direct 75% of loan expenses to payroll. Unfortunately for some business owners, the split does not reflect their operational reality. More money is needed to manage fixed expenses beyond the current 25% limit, while less is required to fund payroll expenses, falling short of the 75% requirement. The Act proposes to eliminate the 25% requirement and permit borrowers to spend as they see fit.
- Extended Loan Repayment Terms – The Act will expand the loan repayment period beyond the current 2-year term. There is concern from various industries that the current repayment window will not be sufficient enough to allow companies to recover before the loan must be repaid.
- Full Payroll Tax Deferment – In IRS Notice 2020-32, it was ruled that any expenses paid by PPP funds and were forgiven, could not be deducted. This was met with great concern and disappointment by many in Congress and the business community. The Act will override this ruling and ensure these expenses are fully deductible.
- Modification of FTE Calculations – Since the CARES Act provides for robust unemployment benefits, many borrowers are running into issues rehiring former employees because they are making more money by not working. To resolve this situation, the Act proposes that a borrower’s forgiveness is not impacted if the employer is unable to rehire former employees or can demonstrate an inability to hire similarly qualified individuals before December 31, 2020.
Change is on the horizon as there appears to be a consensus that modifications need to be made to the PPP. It is expected that the House will debate and vote on the Act when returning from the Memorial Day holiday. Whether all the changes are approved as is, or further modified, it is obvious more changes are in store. If you have questions about the information outlined above or need assistance with PPP loan forgiveness, JLK Rosenberger can help. For additional information, call us at 949-860-9893 or click here to contact us. We look forward to speaking with you soon.