The Mindbender of PPP Loan Forgiveness for Small Businesses

Published on June 11, 2020

The CARES Act of March 2020 included the Paycheck Protection Program (PPP) designed to provide small businesses with liquidity to pay their employees and cover basic non-payroll expenses during the COVID-19 crisis. The rules and regulations surrounding the legislation has continued to change resulting in a mindbender for a small business owner. Additionally, the U. S. House of Representatives on Wednesday, May 27, passed the bipartisan (471-1), Paycheck Protection Program Flexibility Act, which addresses the previous (PPP) legislation for the purpose of providing greater flexibility and time for a small business owner to take advantage of enhanced loan forgiveness provisions. The new changes, if passed by the Republican-led Senate and signed by the President, would potentially:

·        Lower from 75% to 60% the minimum portion of the PPP loan that must be spent on payroll to be eligible for loan forgiveness. The remaining 40% must be spent on rent, utilities, and other non-payroll expenses.

·        Extend the ‘Covered Period’ from 8 weeks to 24 weeks, which is the time loan proceeds spent on payroll and non-payroll expenses are considered eligible for loan forgiveness.

·        Extend the payback term of the loan not converted into a grant from 2 years to 5 years.

·        Extend the date to rehire employees from July 30 to December 31, 2020.

The bi-partisan House bill brings great news of what may be coming for small businesses, but the downside is the Treasury, on May 13, issued new guidance expanding the scope of being audited by the Small Business Administration (SBA) after having established a “safe harbor” rule protecting loans under $2 million from being audited. 

“For a PPP loan of any size, SBA may undertake a review at any time in SBA’s discretion. For example, SBA may review a loan if the loan documentation submitted to SBA by the lender or any other information indicates that the borrower may be ineligible for a PPP loan, or may be ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower. 13 CFR 120.524(c).”

The laws listed in the recent House bill above are a few (PPP) changes small business owners must begin to factor into new cash flow forecasts and loan forgiveness recalculations of the FTE’s (Full Time Equivalent) from traditional (SBA) loans of 32 hours per week for a full-time employee to the new guidelines of 40 hours a week for a full-time employee.

Amid the unparalleled times of a world-wide pandemic causing economic disruption, to horrific scenes of violence perpetrated on U. S. citizens leading to civil unrest, chaos, and destruction of property; the needs, concerns, and fears, of a small business owner are no doubt equally daunting. There is a Light guiding us all through this darkness, and working together, we can help each other resolve, and solve, with innovative and creative solutions, the complexity of problems facing us and our businesses.