PPP Loan Forgiveness Extended: What to Know

Calculator, pen and money

Today’s blog is a summary of Bill HR 7010 passed by the Senate on 6/3/2020.

The likelihood of forgiveness of a significant portion of your loan is dramatically increased by these four provisions:

  1. The eight-week “covered period” under CARES has been extended to 24 weeks (nearly six months!), so you have three times longer to spend the loan funds toward forgivable expenses.
  2. The CARES requirement that 75% of funds be applied to payroll has been reduced to 60%, so you can take advantage of the extended (24-week) covered period by applying funds toward mortgage or rent payments and utility expenses.  Caution:  the bill reads as though if you don’t spend at least 60% of your funds on payroll, then none of the loan would be forgiven.  While the SBA may fix this “cliff” effect in the regulatory language, our advice is not to count on that and be sure you apply more than 60% of your loan proceeds to payroll.
  3. The deadline for restoring your full-time equivalents (FTEs) to February 15th levels has been extended from June 30, 2020 to December 31, 2020.  Meeting this requirement will mean no reduction in your forgiven amount.
  4. Even if you lose FTEs between February 15th and December 31st, you can still avoid a reduction in forgiveness if you can document (in good faith) an inability to rehire employees (same or similarly qualified) or an inability to return to the same level of business activity due to compliance requirements issued by any of three federal agencies (see article for details).

If you believe you will utilize all of your loan funds within the eight-week period originally defined in the CARES Act, you still have the option of submitting your application for forgiveness on that basis.

You can now defer the employer’s 6.2% share of 2020 social security tax until 2021 and 2022 (50% each year), regardless of when your loan is forgiven.  This was previously restricted.

Whatever portion of your loan isn’t forgiven may now be repaid over five years (was two years under original CARES Act).  Also, payment of principal and interest is deferred until the date the lender receives the forgiveness amount from the SBA (original six months under CARES)

Some important questions remain to be answered by the SBA, including:

  • Does extension of the covered period for forgiveness to 24 weeks apply equally to owners and self-employed taxpayers?  Seems logical, but it’s not clear in the legislation.
  • If a borrower fully spends its loan funds earlier than 24 weeks (but later than 8), can it apply for forgiveness right away?

Expect a new set of FAQs to be released from the SBA now that the legislation has passed at this link: https://www.sba.gov/document/support-faq-ppp-borrowers-lenders

As always, the comments here are for informational purposes are should not be considered professional tax advice.  We recommend that you consult with the actual laws and regulations and/or have your CPA review your specific situation in light of the latest guidance from the government.