The US Small Business Administration (SBA) amended a number of key requirements of the Paycheck Protection Program (PPP), but the most important requirement – the application deadline – hasn’t changed and looms large. The deadline for loan applications is June 30, 2020, and you must receive a Small Business Administration (SBA) loan number by that date. If you’re planning on applying, you should work with your lender well in advance of this date to ensure timely submission.
On June 16, 2020, the SBA released revised forms of loan forgiveness. The standard forgiveness application includes calculations related to reductions in salary or the number of full-time employees by borrowers and updated instructions about how to make the calculations. The main updates involve the calculation of the covered periods, the full time equivalent and salary/wage reduction measurement periods, and the 60/40 thresholds for payroll and non-payroll expenses.
Here’s what you need to know.
Changes made by the Flexibility Act to the PPP Program include:
- The maturity date of loans taken after June 5 will be extended from two years to five years. The maturity date can also be extended for loans made before June 5, if the borrower and lender mutually agree.
- The covered period for loan forgiveness was extended from eight weeks to 24 weeks.
- Reduction in the amount that you needed to spend on payroll in order to obtain forgiveness from 75% to 60%.
- An extension of the date to replace full-time equivalent employees and restore salaries from June 30, 2020, until December 31, 2020. It also allowed relief for those businesses that have a loss of FTEs because of Covid-19 related restrictions that prevent the same level of business activity through the end of the year. This is a significant help to those businesses who still have not been able to fully reopen because of stay-at-home restrictions.
The IFR also gave additional insight on how to calculate owner compensation, employee compensation, and non-payroll costs.
Owner compensation is either:
- Eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week covered period or
- 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week covered period.”
For those filing a Schedule C, the first option is the same it has always been – 2019 Schedule C line 31/52 x 8. The second option is also the same, which is how to calculate the maximum loan amount, but if you are choosing the 24-week covered period option, you should expect full-loan forgiveness.
The 24-week extension also increased the amount eligible for forgiveness to business owners with employees. The payroll costs including salary, wages, and tips is still capped at $100,000 of annualized pay. But now instead of $100,000/52 x 8 (a max of $15,385 per individual), it’s up to $100,000/52 x 24, increasing the new maximum forgiveness cap to $46,154 per individual for a 24-week period.
Loan forgiveness amounts for non-payroll expenses have also been extended to 24 weeks, making it much easier to meet loan forgiveness thresholds. As a reminder, non-payroll expenses include:
- Mortgage obligations: payments of interest on any business mortgages incurred before February 15, 2020.
- Rent obligations: business rent or lease payments pursuant to lease agreements in effect before February 15, 2020.
- Utility payments: business payments for electricity, gas, water, transportation expenses.
These are welcome changes to PPP borrowers, who can now breathe a bit more easily. If you’ve been considering applying, the deadline for loan applications is June 30, 2020 for PPP funding. There is still about $150 billion left from the second round of relief.