The Paycheck Protection Program Flexibility Act (PPPFA) was passed into law to address concerns expressed by the small business community around the original Paycheck Protection Program rules.
1. PPPFA changes percent of the loan required to be used on payroll to 60%
The biggest complaint around the PPP loan program was that it required businesses to spend 75 percent of the loan on the payroll. If your business was shut down due to COVID-19, this meant paying your workers to stay home and do no work. The PPPFA reduces the amount of the loan needed to be spent on payroll from 75 to 60 percent, thus increasing the dollars available for other expenses from 25 to 40 percent.
2. PPPFA extends the time period to use funds from 8 to 24 weeks
The second biggest issue around PPP was that it required businesses to spend the funds in the eight-week period from the date funds were received. If your business was shut down by government mandate, this amounted to spending funds when, perhaps, conserving them was in order. Business owners lobbied hard to have the flexibility to spend the loan after reopening, especially on the payroll when workers returned to work and were not sitting idle.
3. PPPFA pushes back a June 30 deadline to rehire workers to December 31, 2020
Many businesses were concerned they might not be open or operating at full capacity by June 30th and would be required to pay employees for not working. Under the new law, businesses now have until December 31, 2020, to rehire workers for their salaries to count towards forgiveness. (It is important to note, however, that the law did not change how salaries are calculated towards forgiveness)
4. PPPFA eases rehire requirements
The new law states a business can still receive forgiveness on payroll amounts if it: Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020; is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020. The good news appears to be that even with a reduced headcount based on these exceptions if 60 percent of the loan is still used on payroll throughout the remainder of 2020, it will be forgiven.
5. PPPFA extends the repayment term from 2 years to 5
The new law also eases repayment terms in the event loans or portions of them are not forgiven. A business now will have five years at 1% interest to repay the loan. Further, the first payment will be deferred for six months after the SBA makes a determination on forgiveness. Since under current regulations your bank has 60 days to make a forgiveness determination and the SBA an additional 90 days, this means you could have up until May of 2021 to make the first payment on the loan.
In addition, the PPPFA also allows borrowers to take advantage of the CARES Act provision allowing deferment of the employer’s payroll taxes for Social Security. Previously, PPP did not permit deferment of these taxes on the forgivable portion of the loan. All in all, PPPFA is a win for small businesses. The law will ease many of the burdens placed on businesses that received PPP loans and for many that may still apply for them. It is also positive that politicians on both sides of the aisle listened to small business owners and took quick, decisive action!
GOVERNOR ABBOTT UPDATE
Via the Governor’s Executive Order, the following services and activities may open under Phase III which went into effect this past Wednesday…
Amusement Park Operators | Amusement Park Visitors
Fine Arts Performance Halls | Fine Arts Performance Hall Patrons
Video Game Facilities
Opened services and activities under Phase III are subject to certain occupancy limits and health and safety protocols. For details and a full list of guidelines and openings, visit www.gov.texas.gov/opentexas
This material was originally produced by the Northeast Tarrant Chamber of Commerce and updated slightly for MyCurbToGo.