PPP loan forgiveness receives new flexibility: updates businesses need to know

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The Paycheck Protection Program (PPP) has been a source of great hope for many small businesses impacted by the new coronavirus. As companies begin to reach the nine-week mark since receiving their loans, the Small Business Administration (SBA) has released new guidelines adding significant flexibility to the loan forgiveness process.

Business owners should be aware of several integral changes under the Paycheck Protection Program Flexibility Act (PPPFA), which loosened guidelines to ensure the program is more business-friendly.

First and foremost, the PPPFA extended the timeline for businesses to spend their borrowed money from two months to 24 weeks — instead of a June 30 deadline, businesses now have until Dec. 31. The extended spending period gives companies more flexibility to use the funds how and when they are needed. Specifically, as many restaurants, manufacturers and hotels reopen, they can now use the money to cover reopening costs. However, businesses who wish to apply for the loan to be forgiven after just eight weeks will still be able to do so.

The amount of the loan that is not forgiven must be paid back. The deadline to do so was previously set at just two years. Under the updated guidelines, companies who receive a PPP loan after June 5 now have five years to pay back lenders. However, loans granted prior to June 5 will still be held to the two-year deadline, unless loan recipients receive permission from their lender to change the deadline.

Beyond extended timeframes, the new rule also grants flexibility in how loans are utilized, including a change in the percentage of the loan that must be spent on workforce payroll costs. Prior to the PPPFA, companies were required to spend 75% of their PPP loan on payroll costs to be considered for loan forgiveness. The new guidelines set the payroll percentage at 60% of loan proceeds. However, 60% is firm cut-off — there will be no forgiveness granted if a company does not reach that number. The remainder of the loan must be spent on utilities, rent or mortgage interest.

Loans also can now be forgiven even if the business doesn’t bring back the same number of employees as it had before, due to the SBA’s full-time equivalency adjustments. If the company is unable to rehire individuals who were on staff prior to Feb. 15 or if there is an inability to hire similarly qualified employees by Dec. 31, the loan may still be forgiven.

Under these new modifications, the importance of proper documentation is an even more crucial aspect of loan forgiveness. Business owners should document all loan expenses and be prepared to provide receipts when applying for forgiveness. With this, they should also be sure to include information on the number of full-time employees on payroll, employee salaries and wages, rent, utilities and mortgage interest. In order to provide documentation of these items, businesses can reference eligible cash compensation and noncash benefit payments, bank account statements, third-party payroll service provider reports, tax forms, health insurance invoices, utility payment receipts and canceled checks.

Remember, guidelines will vary from one lender to the next, and additional documentation may be required. To ensure a loan is fully forgiven, business owners must understand their bank’s specific rules and regulations. Businesses applying for loan forgiveness must apply within 10 months after the end of the loan. The lender will then be required to respond to the request within 60 days of receipt.

Under the SBA’s current legal guidance, June 30 is the last day banks can issue PPP loans to businesses. There is roughly $159 billion still available, so companies who have not yet filed should do so immediately.

Companies should work closely with financial experts to ensure documentation is clear and understandable to bankers. If the loan is not properly documented, it will not be forgiven.

Rehmann’s COVID-19 Knowledge Center provides practical guidance and insights to help empower organizations and individuals as they navigate through the uncertainty and complexity of the pandemic.

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