You might be tired of sorting through all the fine details of PPP, but we do have some important updates. That said, our disclaimer still stands: Seek counsel with your advisors to help you with your specific strategy.
Paycheck Protection Flexibility Act Updates
In my last update, I mentioned that the Paycheck Protection Flexibility Act of 2020 modified the terms of the PPP. Here are three important modifications:
- The covered period has been extended from 8 weeks following the origination of the PPP loans to 24 weeks, or December 31, 2020. Those of you who received loans before June 5 can choose to keep an 8-week covered period; consider carefully which covered period to use on your forgiveness application.
- Employers who cannot, because of quarantine circumstances, rehire their full team will not be penalized when applying for forgiveness.
- The percentage of the loan that must be spent on payroll for full PPP forgiveness was reduced from 75 percent to 60 percent. Important to note is that in our June 3 blast, we reported that the new legislation would eliminate forgiveness for loans that do not meet the 60 percent threshold. This has since been clarified. A borrower who uses less than 60 percent of the loan for payroll will still be eligible for partial loan forgiveness.
If you reported self-employment income on a Schedule C or F on your personal tax return for 2019, there is a cap of $20,833 that can be forgiven.
- Previously, under the original eight-week covered period, the cap was $15,385. This cap remains if you use an eight-week covered period instead of the 24-week covered period.
- It is inferred that owner-employees have the same caps, though this is not specifically stated.
- Employer health insurance contributions and retirement contributions are specifically limited to 2.5 months worth of 2019 contributions.
The SBA has revised the application for forgiveness and added a simplified version of that form.
- The revision date is June 16, 2020. https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf
- The simplified form is called a 3508EZ. https://home.treasury.gov/system/files/136/PPP-Forgiveness-Application-3508EZ.pdf
- Here are the instructions for the EZ. https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Form-EZ-Instructions.pdf
Note that you can use the EZ form if one of three conditions occurs:
- You are self employed and had no employees included in your original PPP application.
- You did not reduce any employee salary by more than 25 percent during the applicable period and you did not reduce your FTEs (with the exception of those employees who could not be replaced or who refused to come back_.
- You did not reduce any employee salary by more than 25 percent and you were unable to operate during the covered period at the same business activity as before February 15, 2020 due to compliance guidance issued by then Federal government related to standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
A reminder to all that the last day that a lender can obtain an SBA loan number is still June 30. As of the date of this notice, we believe there are still some funds left in the program, so if you did not apply for PPP, you might still qualify.
Loans dated obtained after June 5 must have a five-year loan maturity rather than a two-year loan maturity. If you received your PPP before June 5, you might inquire if your lending institution will agree to a five-year maturity modification to replace the original two-year maturity term. .
Remember that just about every deferred tax return originally due during the period is now due on July 15.
The IRS is slowly recalling their workers in all states, which means that the government wheels are slowly turning. That said, there is a pile of mail to sort at the IRS, so don’t expect things to run quickly.
We are given to understand that Economic Injury Disaster Loans (EIDL) are now being offered to all companies. (In the recent past only agricultural businesses were considered.) The maximum allowed loan, at this time, still appears to be $150,000.
Main Street Lending Updates
An alternate loan facility call Main Street is slowly being readied to provide financing for larger businesses that are of “sound financial condition. These will be offered by lending institutions (though the program is through the Federal Reserve). Here are a few notes about the Main Street Lending Program:
- It is anticipated that the minimum loan size will be reduced from $500,000 to $250,000.
- The Fed may include not-for-profits as part of this program.
- These loans are recourse and do carry repayment terms.
- Here are the updated frequently asked questions: https://www.bostonfed.org/mslp-faqs
- Note that taking this type of loan does carry with it constraints. There will be comp and stock-repurchase restrictions. As well, payments on Main Street debt must take priority from repaying much other business debt.