PPP Loan Maximization: Changing Legislation

Congress just passed legislation introducing material changes to the Paycheck Protection Program (PPP). These changes are likely to affect all PPP borrowers. We recently discussed these important changes with Jaime Wood, District Director for the South Dakota District Office of the U.S. Small Business Administration.

Changes in legislation and how it affects the PPP
Recent legislation made significant changes to the PPP, including extension of the covered period, non-payroll costs and extension of the program deadline.

Extension of the Covered Period for PPP Loans
Originally, PPP legislation defined the covered period as eight-weeks beginning on the date of loan origination. New legislation has extended the covered period to 24 weeks, which provides significant additional time for borrowers to make eligible PPP loan expenditures. In fact, the extension of the covered period to 24 weeks is likely to result in more borrowers being eligible for partial or full forgiveness of PPP loan funds.

While the legislation has extended the covered period, borrowers can choose to apply the original eight-week covered period instead of the newly defined 24-week period. This may allow borrowers to apply for forgiveness sooner.

Maximize your loan forgiveness under PPP.

Non-Payroll Costs Limited to 40%
A large factor of PPP loan forgiveness was the 75% payroll requirement. New legislation relaxes this and instead allows borrowers to use at least 60% of loan proceeds on payroll. A borrower could therefore use up to 40% of their loan proceeds on rent, utilities and other qualified expenditures.

PPP Program Now Open until December 31
Originally, the PPP was scheduled to expire on June 30, 2020. New PPP legislation has now changed the expiration date to December 31, 2020. What does this mean for borrowers?

  • Borrowers presumably have until December 31, 2020, to restore full-time equivalent (FTE) employee count and any salary reductions.
  • Borrowers eligible for full forgiveness during the eight-week covered period may choose to apply that period (rather than the new 24-week period) in order to measure any FTE or salary reductions against the June 30 date (rather than waiting until December 31).
  • New borrowers can apply for PPP loans until December 31, 2020, as long as funding remains in the program.

We broke down the new guidance for PPP loan funding.

How the new legislation modifies borrower’s plans and preparation
This legislation, while introduced late in the process, provides welcome changes for many PPP borrowers. These new changes may help a significant number of borrowers to achieve at least some forgiveness.

The extension of the covered period and the change in the percentage of eligible expenditures related to payroll can certainly help many borrowers. However, it will still take proper planning and an eye to compliance to truly maximize loan forgiveness.

PPP loans and their forgiveness can be beneficial to your organization. It can also be complicated.

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