June 16, 2020

In the beginning of June, Congress passed and the President signed the latest changes to the PPP loan program. These changes have made it much easier to try to qualify the loan for total forgiveness. The important changes are as follows.

1. Extending the Time Period to Use the Borrowed Funds

Under the original law you had to use the funds for payroll, rent and certain other expenses for the eight-week period after you received the funds. If you did not use the funds during that time period then the funds would be deemed a loan that had to be paid back. The new time period is 24 weeks from when you received your funds or December 31, 2020 whichever is earlier.  Since the loan was based upon 2.5 times your monthly payroll which would be around 10 weeks, presumably over 24 weeks you should be able to use the funds for qualified purposes. Note, if you already used up your funds in the 8-week period, you could apply for forgiveness after June 30, 2020

2. Use of Funds

The SBA rules had required that 75% of the PPP funds be used for payroll. Now the new law states that only 60% of the PPP funds needs to be used for payroll. The rest could be used for rent, interest on mortgage payments and utilities.

3. Forgiveness

Remember that the amount of the loan forgiveness is impacted by the comparing the current level of employment at your business to the prior testing period.  However, the new law will ignore the impact of the failure to hit prior employment levels in the following situations for the period of February 15, 2020 through December 31, 2020.

  • If you document that you were unable to rehire an employee who was employed on February 15; or
  • If you document that you cannot hire a similarly qualified employee for unfilled positions by December 31, 2020; or
  • You are able to demonstrate that you could not return to the same level of business activity compared the business activity prior to February 15,2020 due to compliance with rules issued by HHS, the Director of Disease Control and Prevention or OSHA related to social distancing, sanitation or other worker or customer safety requirements related to COVID- 19.

Finally, if you reach your old employment levels by December 31, 2020, then you will be deemed to have satisfied the level of employment standard. Based upon these new rules it would seem that it should be relatively easy to make all of the PPP loan forgivable.

4. Loan Term

If you cannot have all of the loan forgivable, the new law extends the payment terms from two to five years at 1%.  Also, the new law allows you to defer some employment taxes even if you receive a PPP Loan. Any loan amount payback is deferred for 6 months after the SBA makes a determination of forgiveness.

5. Miscellaneous

The new law allows businesses to qualify for employment tax deferral even if they have PPP loan.

On June 16, 2020 the SBA has issued revised applications to apply for loan forgiveness. You can find the form here.

If you have any questions or comments about this article, please contact Michael L. Solomon, Esq.