On Friday, the President signed the Paycheck Protection Flexibility Act. For the many small business owners who received PPP Loans, this act offers much-needed changes to loan forgiveness and spending. It also changes the decision making on whether or not to apply for one of these loans.
Highlights of the changes are:
- Forgiveness period changed from 8 to 24 weeks or December 31st, whichever comes first.
- Reducing the payroll spending provision from 75% to 60% of loan proceeds.
- Eliminating the Full-Time Equivalent (FTE) requirement if rehiring is impossible due to the inability to hire qualified staff or return to regular business activity due to employee or customer safety concerns.
- Increasing the loan term from 2 to 5 years for new loans and upon lender and borrower agreement for existing loans.
- Deferring payment until the SBA approves the loan forgiveness amount.
- Allows payroll tax deferral even if the borrower applies for forgiveness.
What remains the same is the allowed use of proceeds: payroll, rent or mortgage, and utilities.
If your business has thus far been unable to re-open, but you received a PPP loan, this is great news. The clock is no longer ticking and more of your loan became eligible for forgiveness, either because you have longer to spend the funds or because you have longer to return to your full workforce. You will need to work with your lender if you want the extended 5-year term, though.
What if you didn’t apply for a PPP loan because it was unlikely you would be able to get the loan forgiven? Should you apply now, while funds are still available?
If you think you will return to some form of operations by June 30th, apply now. You only have until June 30th to apply. Assuming you receive a loan, you would then have a 24 week period that likely coincides with the December 31st headcount deadline.
If you think you will return to operations sometime between July 1st and November 1st, it’s worth considering. You’ll need to decide:
- Is this a good business decision if it turns out I can’t get all or a portion of the loan forgiven?
- Can I repay the full loan within 5 years if it isn’t forgiven?
- Can I get my workforce up to January-February levels by December 31st?
If the answer to all of the above is yes, then you should apply for a PPP loan.
Navigating the PPP loan process has been challenging for small business owners. This loan, used properly, can be either a life raft or an opportunity for your business. Please contact us if you need guidance.