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If your business was successful in obtaining a Paycheck Protection Program (PPP) loan, legislation signed June 5 comes with a dose of good news.

Under the new law, borrowers can qualify for partial loan forgiveness if less than 60 percent of the PPP loan is used for payroll, according to the U.S. Small Business Administration (SBA) and Treasury. Originally, 75 percent was the minimum percentage of PPP funds borrowers had to spend on payroll costs to have the loans forgiven.

The SBA, in consultation with Treasury, will soon issue rules and guidance, a modified borrower application form and a modified loan forgiveness application implementing the amendments to the PPP made in the new law. Small businesses are still able to apply for PPP loans, with the deadline remaining June 30, 2020.

Program changes

The new PPP legislation includes the following changes:

• Extends the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement. This provides greater flexibility for borrowers to qualify for loan forgiveness. Borrowers that have already received PPP loans retain the option to use an eight-week covered period.
• Provides a safe harbor from reductions in loan forgiveness based on reductions in full-time-equivalent (FTE) employees for borrowers that are unable to return to the same level of business activity the business was operating at before Feb. 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020, and Dec. 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.
• Increases to five years the maturity of PPP loans that are approved by the SBA (based on the date the SBA assigns a loan number) on or after June 5, 2020.
• Extends the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).

About Paycheck Protection Program (PPP)

The PPP launched in early April with $349 billion in funding that was exhausted in less than two weeks. Congress provided an additional $310 billion in funding in an April 21 vote, but demand for the program soon waned due to controversies over publicly traded companies and other large enterprises being awarded loans. Concerns about the attainability of loan forgiveness under the program’s rules also contributed to small businesses and other eligible entities casting a wary eye to the program.

Congress established the PPP to provide relief to small businesses during the coronavirus pandemic as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. The legislation authorized Treasury to use the SBA’s 7(a) small business lending program to fund loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.

In order to apply for a PPP, businesses should contact a bank or lending institution that does handles SBA loans. For guidance on how to spend PPP loan funds or how it will affect your company’s financial situation, contact one of our CPAs in Salem at 330-332-4646 or East Liverpool at 330-385-2160.