Coronavirus and Taxes Part 10
Paycheck Protection Program Loan Forgiveness Changes - AGAIN
June 9, 2020
The rules to the Paycheck Protection Program keep changing faster than I can write about it. On Friday June 5, I published the changes that were signed into law that day by the President. On Monday (yesterday) the US Treasury Department and the Small Business Administration clarified certain aspects of the law. Before I go into those changes it is important to understand that these changes may actually be contrary to the law signed on June 5. Further clarification may come as a technical corrections bill.
Pre June 5: Borrowers were required to spend at least 75% of the loan on payroll expenses (Payroll is defined as payroll, state payroll taxes (not Federal), group health insurance and pension / retirement contributions) for the loan to be forgivable. No more than 25% could go toward utilities, business mortgage interest or rent.
June 5: The new legislation signed on Friday softens the requirement allowing 60% of the proceeds go toward payroll. When the changes to the program were announced on Friday, the 60% payroll requirement was stated to be a cliff- either you use at least 60% for payroll to get qualified for forgiveness or if you don’t spend at least 60% you do not qualify for forgiveness. 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%.
June 8: A new PPP forgiveness application is forthcoming to reflect the announce clarifications made by the U.S. Treasury Department and the Small Business Administration. These clarifications include:
- business owners who apply less than 60% of the funding toward paying their staff are still eligible for partial forgiveness of the loan.
- Originally, borrowers had two years to repay their loans at an interest rate of 1%. The Treasury and the SBA are giving borrowers five years if their loan was approved by the SBA on or after June 5. On Friday it was stated that you could get your two-year loan changed to five years just by asking – now this may not happen. You may ask but the lender makes the final decision. Speculation is that 1% loans are not what the banks want on their books and may not approve the change to five years.
- Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
- Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
As the mud in the water continues to settle, I will keep everyone informed. Feel free to reach out to me to discuss your situation. Be safe everyone.
Harry E. Hunter
Hunter Consulting, Inc.
June 9, 2020