What the new Paycheck Protection Program Flexibility Act means for you
Thanks in part to efforts by the National Restaurant Association, small businesses, especially restaurants, have more incentives to apply for the Paycheck Protection Program enacted in April in response to the coronavirus crisis.
The deadline to apply for a PPP loan is June 30.
The Paycheck Protection Program Flexibility Act, a House-initiated reform bill passed by the Senate and signed into law by President Trump on June 5, fixes the problems in the PPP that prevented many restaurants from applying.
The changes to the PPP make it possible for more restaurants to take advantage of the program’s loans, gives greater flexibility to those who have already applied in how and when they use the loans, and makes it easier for all recipients to meet the requirements for loan forgiveness. Here are highlights of the changes and what they mean for you.
- Extends expense forgiveness from eight weeks to twenty-four weeks. If you’ve already applied and borrowed from the PPP, you can choose to extend the eight-week period to 24 weeks, or you can keep your original eight-week period.
New PPP borrowers will have a 24-week covered period from the date of the loan, or until Dec. 31, 2020, whichever comes first. This extension and flexibility in which time period you use should make it easier for your loan to qualify for full, or almost full, forgiveness.
Many restaurateurs felt bound by the eight-week window because many of them were not even open to full employment capacity and doubted they would be in eight weeks when the first PPP was passed in April.
- No longer requires 75% of loan go to payroll. Now, you only have to apply 60% of the money you borrow on payroll expenses to meet the requirement for loan forgiveness. That means you can apply up to 40% of the money you borrow towards non-payroll expenses such as rent or mortgage and utilities, and still qualify for maximum loan forgiveness.
Again, with the original PPP, the need to use 75% of the loan toward payroll in order to qualify for loan forgiveness was problematic because most operators were unable to hire to full capacity yet, but other expenses were pressing.
- Changes the two-year loan repayment requirement. For restaurants that apply now, the loan repayment term is extended to five years. The two-year term given to those who already received loans can be extended up to five years if you and your lender agree. The interest rate on PPP loans remains 1%.
- Allows payroll tax deferment for PPP recipients. The CARES Act allowed the restaurant’s 6.2% portion of employees’ Social Security taxes to be deferred, half of it until 2021 and the other half until 2022, but that was up until the moment your loan is forgiven. Now you can defer all those 2020 taxes, even after the loan is forgiven.
Deeper explanation: The time period for which the loan applies is 24 weeks (up from eight); loan forgiveness is the date on which the SBA determines the portion of your loan that can be forgiven (based on the paperwork you need to turn in). The old rules stated that as soon as your loan gets forgiven — say, June 2021, just as an example — then all the 2020 SS taxes you deferred would have had to be paid then. Now, you get to defer 50% of those 2020 taxes until the end of 2021, and 50% until the end of 2022, no matter when your loan (or a portion thereof) is forgiven.
- Extends the June 30 rehiring deadline. In order to qualify for loan forgiveness, you now have until December 31, 2020, to rehire employees.
- Expands rehiring loan forgiveness qualifications. In order to qualify for loan forgiveness, the PPP originally required you to rehire the number of FTEs you had before February 15 by June 30, 2020. Now there won’t be any reduction in the amount of your loan forgiveness if you can show that in the period from February 15 to December 31, 2020:
1. You’re unable to rehire the employees who were on staff before February 15;
2. You’re unable to hire employees with similar qualifications for unfilled positions by then; or
3. Your restaurant is unable to return to the previous level of business before February 15, 2020, due to compliance with any COVID-19-related government restrictions still in place.
- The deadline for applying for PPP loan remains June 30, 2020, so you don’t have much time.
The Small Business Administration (SBA) is expected to release a set of FAQs to clarify the new rules in the next week.