Payroll Protection Program (PPP)
US Legislators Sign Changes to PPP Loan.
(Journal of Accountancy) The U.S. Senate passed the House version of Paycheck Protection Program (PPP) legislation Wednesday night, tripling the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness of the loans.
The bill passed in a unanimous voice vote hours after Wisconsin Sen. Ron Johnson initially blocked it. Among the key provisions is a change in the threshold for the amount of PPP funds required to be spent on payroll costs to qualify for forgiveness to 60% of the loan amount. The Senate approval sends the House bill, called the Paycheck Protection Flexibility Act, to President Donald Trump, who is expected to sign it. The vote had to be unanimous because the Senate is not officially in session. That meant that any senator could force the matter to be delayed until the Senate returned to Washington with enough members for a quorum and a vote. Leaders from both parties in the Senate pushed to pass the legislation on Wednesday as the clock on the initial eight-week window recently expired for the first recipients of PPP loans. Johnson dropped his objections after Senate leader Mitch McConnell agreed to add a letter to the Congressional Record clarifying that June 30 remains the deadline for applying to receive a PPP loan.
Following is a summary of the legislation’s main points compiled by the AICPA:
- Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
- Under the language in the House bill, 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. Rep. Chip Roy (Texas), who co-sponsored the bill in the House, said in a House speech that the bill intended the sliding scale to remain in effect at 60%. Senators Marco Rubio and Susan Collins indicated that technical tweaks could be made to the bill to restore the sliding scale.
- 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.
- 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%.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
SBA Releases PPP Loan Forgiveness Application.The form and instructions inform borrowers how to apply for forgiveness of their PPP loans, consistent with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). SBA will also soon issue regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities. SBA PPP Forgiveness Application
SBA releases FAQ’s on PPP loan administration.The Small Business administration in conjunction with the IRS has released a series of frequently asked questions on the PPP loans and how the SBA/IRS will manage the account of them. One important piece of information is Bowers may rely on the SBA’s interpretations of the Interim Rule as a Final Rule for accounting purposes. Read the SBA’s FAQ section regarding PPP. The Paycheck Protection Program (part of the CARES Act) was approved March 27th. Businesses can apply for these loans starting 4/3/2020. The PPP loan will be administered by the SBA under its 7 (a) loan program and businesses will apply directly with a financial institution when the loan application is made available. You can apply for this loan with any financial institution that offers them (most banks).
Paycheck Protection Program (part of the CARES Act)The PPP loan would help small businesses, non-profit or veterans organizations (fewer than 500 employees) impacted by the pandemic and economic downturn to make payroll and cover other expenses from February 15 to June 30 (known as the “covered period”). Sole proprietors, independent contractors and self- employed individuals who would be eligible for Emergency Sick Pay under the Families First Coronavirus Response Act (FFCRA) may qualify.
- Loan amount is the lesser of 2.5 times average monthly payroll cost over the last 12 months plus outstanding loan amount under EIDL (see specifics ) or $10,000,000.
- Payroll costs include salary, wage commissions or similar compensation payments (to the extent that it would not exceed an annualized amount of $100,000 to the individual employee), payments for group health benefits and retirement benefits, paid vacation, parental, family medical or sick leave (some exceptions).
- Allowed use of proceeds include payroll costs, interest portion of mortgage payments, rent, utilities and interest on other obligations incurred before 2/15/2020.
- There is an amount of the loan that is forgivable with no inclusion in taxable income. Amount is sum of payments made/money spent during an eight-week period after the origination date of the PPP loan for payroll costs, interest on covered mortgage covered rent and covered utilities.
- The amount forgivable is reduced for decreases in full-time equivalent (FTE) employees and decreased of more than 25% in compensation to employees making less than $100,000 on an annualized basis. Reductions in FTEs or compensation occurring between 2/15/2020 and 30 days after the enactment of the Act are not taken into consideration if restored by June 30, 2020. In other words, Borrowers that re-hire workers previously laid off will not be penalized for having reduced payroll at the beginning of the period.
- No personal guarantees or collateral required.
- Maximum repayment term for balance (if any) remaining after forgiveness is 10 years.
- Fixed rate of 4% or less. Currently as of 4/3/2020 the rate is 1%.
- Loan payments will be deferred for a period not less than 6 months and not more than 1 year.
Here is a list of documents your financial institution may require to process your application. Most of them you can obtain directly in iSolved or by contacting us direct.
- 2019 Profit & Loss Statement or 2019 Business Tax Returns (if completed).
- Most recent four quarters of Payroll Tax Form 941.
- Verification of the number of employees and payroll incurred over the most recent 12-month period.
- Copies of w-2s for employees who earn greater than $100/year.
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