This afternoon, the Senate passed HR7010, which we discussed in last week’s update.
This is what we understand to be true, though it is not exhaustive.
- The so-called covered period has been extended from 8 weeks following the origination of the PPP loans to 24 weeks, or December 31, 2020, whichever is earlier. This is good news. An employer that received a loan prior to the date of enactment of this law may choose to continue to use the eight-week period.
- Loans made on or after enactment of this law will now mature a minimum of five years instead of two years. This does not really help anyone who already has a loan, though it bears noting that lenders can, under their own volition, extend the loan terms if they choose.
- The new law codifies that if an employer attempts to rehire employees who were furloughed now but employed as of February 15, 2020, of if the employer attempts to rehire similar positioned employees, but the employees refuse, that reduction in FTE will not count as a reduction in FTE. That said, this attempt (and subsequent refusal) needs to be adequately documented per the law.
- Under HR7010, Congress decided that if at least 60 percent of the loan proceeds are not used for payroll, no forgiveness will be afforded at all. This is bad news for businesses (such as restaurants) that are unable to meet this threshold by the end of the 24 weeks due to drastically reduced staffing needs.
A little background here is necessary to understand how this happened: The original CARES Act did not specify a payroll threshold, but the Treasury issued guidelines that 75 percent must be used for payroll to receive full forgiveness. The professional community and the SBA interpreted this to mean that lesser amounts could still be forgiven at a 75/25 ratio. For instance, if a business spent $10,000 on payment, which was equal to 40 percent of the loan amount), the business could be eligible for forgiveness on that $10,000, plus 25 percent ($2,500) for other costs.
The long and short of it is this: Under HR7010, businesses can receive full forgiveness if 60 percent of the loan is spent on payroll and the other 40 percent is spent on qualified costs. This is good news, but the bad news is that if the 60 percent threshold is not met, no amount will be forgiven.
- The law extends the deferral period for payment of principal, interest, and fees on the PPP until the date on which the amount of forgiveness is remitted to the lender.
- The law permits the deferral of employment taxes provided in Sec 2302 of the CARES Act, even after there is a PPP forgiveness.
As always, talk to us or another trusted advisor about your specific situation, and be aware that changes are likely to unfold in the coming weeks and even months.