Updated: July 20, 2020
You have probably heard of the Paycheck Projection Program now from the CARES Act. There have been some recent changes that are important for your cash and forgiveness of loans.
Paycheck Protection Program (PPP) Loan Update
On June 5, 2020, the President signed the PPP Flexibility Act.
- You can now choose a 24 week Covered Period to get your loan. The start date would be your funding date, and the end date is 168 days later. For example, if the bank funded your PPP Loan on April 15, 2020, your Covered Period ends on September 30, 2020.
- If you received a loan before June 5, you could choose an eight week Covered Period or 24 weeks. If you received a loan after June 5, you must choose 24 weeks. You have to choose either period and nothing in between. This change confused me at first, but it is important to maintaining FTE (full-time equivalent) employee counts and payroll levels.
- FTE calculations were clarified on the latest application.
- FTE is based on a 40 hour work week and rounded to the nearest tenth. For example, an employee who works 30 hours per week is 0.80 FTE (30/40 hours = 0.75 rounded to 0.80)
- FTE is calculated based on the average count during the covered period.
- An Owner/Employee of a C-Corporation or S-Corporation cannot get more forgiven than what they were paid in 2019.
- There are new FTE changes that allow you not to have the forgiveness reduced if these below situations apply:
- Your business was required by law to close anytime after February 15, 2020, and the end of your Covered Period.
- If you reduced your FTE count between February 15 and April 26, 2020, you could hire back to pre-Feb 15, 2020 levels by the end of the Covered Period or December 31, 2020, whichever is earlier. You may have until December 31, 2020, but if you want to get your loan forgiven before December 31, 2020, you would need to hire back before the Covered date.
- You tried to rehire or hire employees, but were unable to do so. Document this HR Process well.
- Employees during the Covered Period who are fired for cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours.
- The FTE reduction does not apply if you have documented an inability to hire or rehire employees by December 31, 2020.
- Changes the requirement that at least 60% of the forgiveness must be payroll related. Rent, interest, and utilities make up the remaining 40%
- PPP loan maturity date is now a minimum of 5 years. We don’t want any left as a loan, but if there is any, you have longer to pay it back.
- Extends the period of payment of the loan until the amount of forgiveness is determined. You have up to 10 months after the last day of the Covered Period to apply for forgiveness.
- You can apply for deferral of the 6.2% Social Security tax in 2020, even if your PPP loan is forgiven.
Economic Injury Disaster Loan (EIDL) Update
- The Small Business Administration (SBA) is providing 30-year loans at 3.75 (For-Profit) and 2.75% (Non-Profit) up to $150,000. Go here to apply. The process has been made much easier. I have seen money arriving in the bank account 2-3 business days after the paperwork is signed. The loan documents are signed using DocuSign.
- You can also get a Cash Advance of up $10,000 based on the number of employees. If you have five employees, you get $5,000. It is not included in the loan amount and does not appear to be part of the PPP loan. You do have to include this amount on the PPP forgiveness application. Based on all that I am reading right now and what the Treasury Department has on their website, I do not think this amount needs to be repaid or an application filed for forgiveness.
- I have been recommending my clients to get this loan as it is a very low payment amount. Cash is helpful for any business. Also, you can save this money and get 0.5% – 1% interest right now.
I keep hearing that Congress will be making some changes to this. I have heard that they may automatically forgive PPP Loans under $150,000. It may not be in your best interest to go through the forgiveness application before 24 weeks. None of the seven banks I worked with are ready for taking loan applications at the time of this article. I have also heard that we might be able to deduct the forgiven PPP expenses. Right now, we cannot deduct these expenses, which means your tax liability will be higher than you think. I would set aside 25% of your PPP loan for tax purposes.
For more information and a template to help you with understanding your potential forgiveness, download this Payroll Protection Program template. You can calculate the potential loan and your forgiveness.