The last three months have been some of the most unpredictable for Denver business owners. The confluence of stay at home orders, forced business closures and fear of COVID-19 transmission have created challenging conditions. Almost overnight many were forced to cease operations with no idea when they would able to reopen or how they would make expenses. Congress stepped up and launched the Payroll Protection Program to help businesses through the uncertainty. While these loans have been a much-needed lifeline for impacted businesses, it has also been a source of great concern. The lack of formal guidance and continual updates from Treasury have created a lot of concern about loan forgiveness calculations and more. To address these concerns, President Trump signed the PPP Flexibility Act of 2020 (the Act). It features several changes from an extended covered period to a safe harbor for FTE calculations. To help clients, prospects, and others, Hanson & Co has provided a summary of the modifications below.
Key PPP Loan Changes
- Extended Covered Period – The Act extends the “covered period” from 8-weeks to 24-weeks, but not later than December 31, 2020. Businesses may still elect the original 8-week period starting from the date loan proceeds are deposited into its account if the proceeds are received before June 5, 2020.
- Non-Payroll Expenses – Many businesses have expressed concern about the requirement to spend 75% of loan funds on payroll to be eligible for forgiveness. Payroll costs have been reduced from 75% to 60% of the loan for purposes of forgiveness.
- Rehire Deadline for Loan Forgiveness – The Act provides significant relief for the inability of businesses to find available workers. Loan forgiveness will not be reduced for FTE employee reduction or attrition if the business is unable to rehire employees that were employed on February 15th or to hire new employees for unfilled positions before December 31, 2020. This guidance is in addition to that already issued regarding employee refusal of documented offers of re-employment.
- Loan Repayment Deferral – There is concern borrowers may need to start repaying the loan before they have information about their approved loan forgiveness. To resolve this the Act extends the repayment period from 6 months to the date the loan forgiveness amount is remitted to the lender. If a borrower fails to apply within 10 months after the last day of the Covered Period, then they must begin to make payments on principal, interest, and fees.
- Loan Term Extended – The Act extends the minimum loan term from 2 years to 5 years. Unfortunately, this is not a retroactive change and only applies to new loans received after June 5, 2020. It is important to note that lenders and borrowers are permitted to revisit loan terms and make modifications.
- Loan Forgiveness Reduction – The Act outlines changes to the proportional reduction in loan forgiveness due to a reduction in employees. Borrowers would be able to receive relief if they are able to document in good faith that for the period between February 15, 2020, and December 31, 2020, they were unable to:
- Rehire employees who were employed on February 15, 2020, or hire another qualified professional for unfilled positions by December 31, 2020.
- Return to the same business level prior to February 15, 2020, due to compliance with federal regulations published between March 1, 2020, and December 31, 2020, related to sanitation, social distancing, and other employee/worker safety guidance.
- Payroll Tax Credits – PPP loan forgiveness no longer prevents businesses from delaying payment of the employer portion of FICA & Medicare payroll taxes, incurred from March 27, 2020, through December 31, 2020. 50% of the amount delayed is to be paid by December 31, 2021, and 50% by December 31, 2022. It is important to know that conditions for participating in the Employee Retention Credit are unchanged. A business is prevented from receiving a PPP loan and claiming the Employee Retention Credit.
Treasury announced Monday they will promptly issue new rules and guidance including a modified loan and loan forgiveness application. Denver businesses should review their situation to take advantage of the payroll tax credits and to optimize their loan forgiveness strategy. If you have questions about the information outlined above or need assistance with a PPP Loan issue, Hanson & Co can help. For additional information call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.