18. PPP's 8 week Period Becomes Much More Flexible

June 8, 2020

Last Friday, June 5, H.R. 7010, the “Paycheck Protection Program (PPP) Flexibility Act of 2020,” became law. This law will benefit roasters who have qualified for PPP loans because it makes sweeping revisions to the original terms of the loan. Forgiveness of loans is now so flexible, it's practically guaranteed.

Want to listen in on a webinar with up-to-date-details on how to apply for forgiveness of your PPP loan? Check out the free Small Business Association of Michigan (SBAM)'s webinar: Thursday, June 11, 10:00am EST: PPP Status, Updates and a Detailed Walkthrough of Forgiveness (Click here to register)

The most significant changes HB7010 incurs are as follows:

1. Businesses have 24 weeks instead of 8 weeks to accrue expenses that qualify for forgiveness. Summarized, can you rack up enough expenses over the last 6 months of 2020 to match what you spent in the first 2 months of 2020? If yes, you've hit one of the two major criteria for loan forgiveness.
2. The deadline for businesses to rehire workers, matching the headcount (full-time equivalent) they had at the end of February, has been extended from June 30 to December 31. Can you arrange that on December 31, 2020, you have matched or exceeded the number of employees that you had at the end of February 2020? If you answer yes, you've hit the second major criteria for forgiveness.
3. The requirement that at least 75% of the proceeds be used toward payroll expenses has been lowered to 60%. Now up to 40% can be used for rent, utilities and mortgage interest. This is important for roasters for whom rent is a serious amount of their monthly expense.
4. The original PPP rules allowed partial loan forgiveness if a company used less than 75% of the loan for payroll, but the bill as it passed states that none of the loan will be forgiven if the new 60% threshold is not met. The entire loan will need to be repaid if payroll expenses are less than 60%.
5. The payback period on any unforgiven loan amounts can be extended from 2 years to 5 years. This would have been more important back when it seemed like some parts of many loans would not be forgiven. But now that almost everyone's loan will be forgivable, this improvement in borrowing terms is nearly meaningless.
6. Bill 7010 also allows loan forgiveness recipients to defer their payroll taxes. Borrowers may defer the employer share of Social Security taxes (6.2%), regardless of whether the borrower receives forgiveness or not. 50% of deferred Social Security tax would be due in 2021, with the other 50% due in 2022.

Regarding Flexible Forgiveness:
The Small Business Administration (SBA) and US Treasury has recognized over the past weeks that the stipulation that the PPP's eight-week period must start the day the loan is disbursed, and end eight weeks later was overly restrictive. Now they are giving every business that qualified for a PPP loan 6 months to spend the loan disbursement on qualified expenses, and only 60% of those expenses have to be payroll. Up to 40% of the loan amount may be spent on rent, utilities (including phone costs) and mortgage interest. In other words, Treasury has basically made it pretty easy for businesses to get 100% forgiveness. 

HOW to correctly apply for that forgiveness is no longer clear, however, for many businesses. 

"When you change the rules of the game in the middle of the game, a lot of things become confusing."  ~ CPA Accountant commenting on HB7010

1. What if you finish using up all of your loan funds in a period that is more than 8 weeks but not 24 weeks? For example, you received the funds on April 4, and you finish using them on July 15? Can you apply for forgiveness and be done with it? Or are you forced to wait until after December 31st? Treasury has not yet issued guidance on this.

2. How do single-member LLCs calculate payroll for forgiveness now? Do they take 24/52 of the 2019 Schedule C net income? Previously they were required to calculate payroll as 8/52 of 2019 net income.

3. What if you hired back all your workers at the beginning of June, "playing by the rules" as they were initially written, and now you have to lay them off in July because you are still not open, and cash flow, including the PPP funds, have run out. Does laying them off like this count against your loan forgiveness?