UPDATED 6/17/20 with SBA interim guidance and new application

Businesses that took PPP loans now have more flexibility to spend the money than the original CARES Act and the IRS and SBA regulations permitted. More information and regulations on this new expansion should be forthcoming. The law is the Paycheck Protection Program Flexibility Act of 2020 (HR 7010).

Among the changes:

  • Extends the covered period to spend the PPP funds from 8 to 24 weeks (or 12/31/20), whichever is first;
    • However, post June 5th borrowers, MUST use the 24-week period, while pre-June 5th borrowers may choose between the 8- and 24-week periods
  • Extends the date from 6/30/20 to 12/31/20 that businesses have to rehire employees and restore salaries to 2/15/20 levels and still qualify for loan forgiveness;
  • Extends the loan period (for funds not forgiven) from 2 to 5 years but only for post-June 5th loans and only if the borrower applies for forgiveness within 10 months after the 24-week period;
    • Pre-June 5th loans are extended only by mutual agreement of the borrower and lender
  • Extends the payment deferral period (for funds not forgiven) from 6 months to 1 year;
  • Reduces the proportion of funds that must be used on payroll from 75% to 60% to qualify for forgiveness;
    • Spending less will result in 66.67% of rent, utilities, mortgage amount above the 40% threshold being forgiven and the rest not forgiven
  • Allows employers more exemptions to rehiring employees who were laid off due to the pandemic (inability to hire qualified employees and an inability to safely operate due to due to social distancing, sanitation requirements, or customer safety needs); and
  • Allows employers to defer 2020 payroll taxes under the CARES Act, even if the employer received PPP funds (defer 50% of the employer’s share of payroll taxes until 2021 and the remaining 50% until 2022).

Regulation changes:

  • A loan is “made” for purposes of the June 5th deadlines above when it is assigned an SBA loan number.
  • Principal and interest must be paid back 10 months after the 8- or 24-week period if no forgiveness application is filed.
  • Felons may apply for SBA loans, unless the felony was within 1 year or within 5 years for fraud, robbery, embezzlement, or false statements on a loan application.
  • New EZ forgiveness application released for borrowers that did not reduce wages by 25% or more, did not reduce average hours, and did not reduce employees, available here.

Will future legislation reverse the IRS’s position that payroll and other permitted expenses that were forgiven are not deductible expenses on the borrower’s 2020 tax returns? This was a frequent complaint because it effectively reduces the advantage of the PPP loan forgiveness by the rate of taxation. Everyone expected this issue to be addressed in the legislation, but it was not.