The federal government updated it’s guidelines for loan forgiveness for the Paycheck Protection Program (PPP). Here is a summary of  changes:

  1. Only 60% of funds now need to go toward payroll.

The new guidelines reduce the amount of the loan needed to be spent on payroll from 75% to 60%, thus increasing the amount of funds available for other expenses from 25% to 40%. It still includes only rent, mortgage payments, utilities, and interest on loans but now presumably for 6 months instead of 8 weeks. (up to December 31. 2020)

  1. Funds can now be used for 24 weeks instead of just 8 weeks

This is a huge change since many small businesses were not ready to open up yet in their state. From my reading, presumably 6 months of wages can now go towards the 60%. Employee compensation eligible is still be capped but if you choose the 24 week period, you can count $20,833 per individual/ This still needs more guidance from the SBA.  Businesses can also apply for forgiveness after 8 weeks if they have spent the money (which I suggest they do).

  1. You now have until December 31, 2020 to rehire workers in order for their salaries to count towards forgiveness.

This means the “safe harbor” date has been extended i.e. hire them back by December 31 and there will be no reduction in what percent of employees you retained. There are new exceptions where you don’t have to hire everyone back and still get forgiveness. This includes your business activity is down significantly or you can’t find qualified people. I am curious how the SBA will audit these last two provisions.

  1. Payment terms extended to 5 years.

If your business can’t qualify for forgiveness, then they can pay back the loan over 5 years instead of 2 years at 1% interest.

  1. Deferment of social security tax

The new guidelines also permit companies to take advantage of the CARES Act allowing deferment of the employer’s 6.2% payroll taxes for Social Security for up to 2 years on the forgivable portion of the loan.

6. Forgiveness

The new regulations provide small businesses 10 months after the last day of the covered period  they choose (8 or 24 weeks) to apply for loan forgiveness. There is also a new EZ PPP loan forgiveness application. You can use it if:

1. You are self-employed and do not have any employees. OR
2. You did not reduce your employees’ hours or did not reduce their salaries or wages by more than 25%.
Even after reading the act, I have unanswered questions that presumably will be addressed in more guidance issued by the SBA. They will update their loan forgiveness application so unless you are able to spend all your PPP loan money in 8 weeks, wait until you fill it out.

Remember, there is still $130B of money remaining through June 30 so make sure you have applied.