Featuring Melonie Hammond-Trace of Tideline CPA Group

UPDATEJune 3, 2020, the Senate approved changes to PPP loan forgiveness as approved by the House last week.  It has to be approved by Trump.

Following is a summary of the legislation’s main points compiled by the AICPA: 

• PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
• The payroll expenditure requirement drops to 60% from 75%.but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met.
• Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
• The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
• Borrowers now have five years to repay the loan instead of two. 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.

Before diving into the webinar, here are five things for you to remember about the PPP Forgiveness Loan (as of May 12 when this was recorded) that are only scratching the surface, but can help you get a jump start when listening to the full webinar.  

1. You have an 8-week “covered period” beginning when loan funds are received. An eligible recipient of a PPP loan must use the proceeds of the loan for the following:

• Payroll costs
• Interest paid on liability of borrower for mortgage of real or personal property incurred before February 15, 2020
• Rent (lease agreement in force prior to February 15, 2020)
• Utilities including electricity, gas, water, transportation, telephone or internet for services in place before February 15, 2020

2. Limitations to PPP Loan

• 75/25 Rule – of your amount of loan forgiven, at least 75% must be expended on payroll cost
• Must maintain average number of full-time equivalent employees (FTEs) during the eight week period

3. Operate normally and spend the loan fund in the spirit they were awarded and you will not have to worry about many of the cautions Melonie mentions in the webinar.

4. PPP loan forgiveness is not all or nothing. A portion of the loan may be forgiven and you pay back the remaining amount. If you are required to repay, payments are deferred for six months (January 1, 2021) and you have two years to pay at an interest rate of 1%.

5. Be sure to evaluate your cash needs beyond the 8-week period against the benefit of maximizing the loan forgiveness. It may be smart for a borrower to forgo the loan forgiveness to ensure enough cash to survive the year.