New Flexibility for PPP Loan Forgiveness

Relief for Small Businesses

A new law called the “Paycheck Protection Flexibility Act” or PPPFA, passed June 5, makes major changes regarding how much time business owners have to use the loan and how the loan money can be spent. Many had complained that the PPP was too restrictive considering the varying circumstances of small businesses.

The original PPP (Paycheck Protection Program) loan plan for small business owners required the loans to be used in an eight-week timeframe. The new law extends the period to 24 weeks. Many businesses had asked for the government to lengthen the window, as some owners shut down entirely while others were only partially operating during the pandemic. The new law also gives business owners more time to rehire employees who may have been laid off so that staffing levels meet the requirements for loan forgiveness. Businesses will be able to get loan forgiveness without regard to a reduction in staffing if they are unable to hire former employees, unable to hire similarly qualified employees, or have not yet returned to full business activity because of coronavirus-related guidelines.

The biggest complaint about the PPP loan program was that it required businesses to spend 75% of the loan on payroll in order for the loan to be forgiven. For those businesses shut down due to COVID-19, this meant that businesses were essentially paying their workers to stay home and not work. The PPPFA reduces the amount of the loan needed to be spent on payroll from 75% to 60% (increasing the amount of funds available for other expenses to 40%).

Business groups had been advocating for 50%-50%, but the new law is still an improvement. But it does not change the list of expenses eligible for forgiveness. It includes rent, mortgage payments, utilities, and interest on loans, but does not include expenses such as inventory, personal protection equipment, remote work, and other needs.

Businesses now have until the end of the year to rehire workers. The first PPP stipulated that workers had to be rehired by June 30, 2020, in order for their salaries to count towards forgiveness. Many businesses were concerned they might not be open, or not at full capacity by this date. It also adds exceptions for a reduced head count. The law says a business can still receive forgiveness on payroll amounts if it:

  • Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
  • Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
  • Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.

PPPFA extended the repayment term for the loan from two years to five year. The new law also eases repayment terms in the event loans or portions of them are not forgiven. A business now will have five years at 1% interest to repay any portion of the loan that is not forgivable.

 

 

 

Blue Spark Capital Advisors

We're a fee-only Registered Investment Advisory and financial planning firm based in New York City and the Berkshires.

We specialize in working with women after divorce, death of a spouse, or other life transitions such as retirement or job change. We provide financial planning and investment management services.

We believe in a holistic approach. Movement in each piece of your financial plan impacts the others, so we consider your entire picture.

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