Michael Bosma: Business owners can relax with PPP forgiveness (Voices)
Covering Your Assets
The U.S. Senate passed the House version of Paycheck Protection Program (PPP) legislation Wednesday night, June 3, extending the timeframe businesses and other PPP loan recipients can disburse the funds and still qualify for loan forgiveness.
As of the date of this writing (6/4/20) what follows is a summary of the legislation’s finer points:
- Perhaps the best part of the legislation is that prior PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period. Note that the covered period can’t extend beyond Dec. 31, 2020. This should make it easier for more borrowers to reach full forgiveness.
- Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75%, but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met. There were several Senators who indicated that technical changes could be made to the bill to restore the sliding scale.
- Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by December 31, 2020 a change from the previous deadline of June 30, 2020.
- The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to February 15, 2020, levels due to COVID-19 related operating restrictions. Many businesses have complained that workers are unwilling to come back to work because they make more on unemployment.
- New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%. This is a huge benefit to businesses that should provide much needed liquidity.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
What do business owners need to do today?
Many business owners are at or near the end of the eight-week window for PPP forgiveness.
Considering the nuances of full time equivalents (FTEs), in addition to the 75% versus 60% thresholds, some business owners may need to fine-tune their forgiveness calculations before the eight-week period is over.
Also, consider using the PPP forgiveness calculator (located at http://www.myclaconnect.com) to ensure that you will receive maximum forgiveness!
The information contained in this article is general in nature. Consult with a competent CPA to discuss how this applies to your specific situation.
Michael Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at email@example.com.
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