Congress Expands Benefits of PPP Forgivable Loans

Congress has approved legislation that makes fixes to certain loan forgiveness provisions of the Paycheck Protection Program (PPP). The program provides assistance to small businesses encountering economic hardships as a result of the COVID-19 pandemic. The new Paycheck Protection Program Flexibility Act triples the number of weeks borrowers have to use PPP loans, from eight weeks to 24 weeks.

The PPP loan program has been under national scrutiny after some of the loans meant for struggling small businesses went to large, publicly traded companies. Many small business owners also reported difficulties in obtaining the loans and disliked restrictions on how the loans could be used. The reform package eases some of these restrictions by changing the amount that must be spent on payroll versus other costs.

Previously, 75% of the loan had to be spent on payroll to qualify for full loan forgiveness. Business owners wanted more flexibility on being able to use the funds for overhead expenditures. The legislation changes change the 75/25 rule to 60/40, which allows borrowers to use a larger portion of the funds for other costs.

In addition to the new 24-week period to use the PPP loans, the previous deadline of June 30, 2020 has been extended to December 31, 2020. This is important because some borrowers were at the end of the eight-week period by May 29, 2020.

The bill also provided two new exceptions to the loan forgiveness requirements. If an employer is unable to find qualified employees for open positions, or if COVID-19 operating restrictions prevent them from restoring business operations, they can still receive full loan forgiveness. There already was an exception for borrowers with employees who turned down good faith offers to be rehired at the same pay rate and hours they had prior to the pandemic.

New borrowers will have five years to repay the loan instead of two, provided their lender agrees. The 1% interest rate for the loans remains intact.

Another change reverses an initial decision which prohibited business owners from delaying payroll taxes if they took a PPP loan.

The PPP was funded as part of $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act , the largest emergency aid package in U.S. history. When the original $349 billion program ran out of funds within two weeks, Congress quickly appropriated another $310 billion in funding.

The Small Business Administration and Treasury Department is expected to issue guidance on the PPP loan reform in the coming weeks. Engineered Tax Services is committed to keeping you informed on all legislation pertaining to the effect of COVID-19 on your business. As a national specialty tax services business, we closely monitor federal and state legislation and guidance. Visit the ETS CARES Act Resource Center to stay updated through our quick navigation links.


Heidi Henderson

Heidi Henderson

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