The Paycheck Protection Program (PPP) Flexibility Act, 2020, was passed by the House of Representatives on May 28, 2020. Today, the Senate passed the bill under the CARES Act (The Coronavirus Aid, Relief, and Economic Security Act). The CARES Act is a $2 trillion package introduced in late March to help the U.S weather the economic blow of the coronavirus pandemic.
The bill is now heading for President Trump’s signature, which will have ten days to make it a law. While small businesses in the country are joyous about the news, it will be fair to say that the amendment to the PPP loans will make loan forgiveness a lot easier for small companies.
Here are the key takeaways of the Paycheck Protection Program Flexibility Act, 2020:
Deadline to use loan funds extended.
Before the PPP Act, businesses would have eight weeks to use the disbursed loan amount. This period is termed as a ‘covered period’ after which, companies can apply for loan forgiveness. With the new bill in place, businesses will now have up to 24 weeks to put the loan to use after which, they can ultimately file for loan forgiveness.
Deadline to apply for a loan extended.
As per the Paycheck Protection Program Flexibility Act 2020, the deadline for a PPP loan will be extended from the earlier June 30, 2020, to December 31, 2020.
Loan maturity extended.
The maturity date of the PPP loans will be extended from 2 years to 5 years. Meaning, businesses will now have FIVE years to pay back the loan instead of two, which is a massive sigh of relief to stores across the country.
75/25 rule gets eliminated.
Eliminating the old rule for payroll costs set by the Small Business Administration, businesses will now have to mandatorily use 60% of the loan amount for payroll and 40% of the loan for non-payroll costs to qualify for loan forgiveness at the end of the term period. Earlier, the ratio for payroll to non-payroll costs adopted was 75:25.
Deadline to rehire employees extended.
A mandatory provision has been made for businesses to qualify for loan forgiveness, wherein they will have to rehire employees. The deadline for rehiring has been extended to December 31, 2020, failing which, businesses will have to face a reduction in loan forgiveness. Additionally, business administration will also have to reverse salary cuts, if any.
However, businesses who prove with documentation that they were unable to rehire employees who were employed with the organization on February 15, 2020, will be exempt from any reduction in loan forgiveness.
The exemption will also hold valid for borrowers who prove with documentation that they are unable to return to the same business with the same activity as before February 15, 2020, due to measures taken by the Federal Government between March 1 and December 31, 2020, to battle coronavirus.
Payroll taxes can be deferred.
All PPP borrowers/businesses will be able to defer the payment of payroll taxes. This measure was earlier prohibited under the CARES Act.
Loan deferral period extended.
With new amendments, the loan deferral period for borrowers has now been extended. The loan deferral period can be extended to whenever the amount of loan forgiveness is paid back to the lender. If borrowers fail to apply for loan forgiveness within ten months, the borrower will have to pay back the loan amount, including the interest and other fees.
The Flexibility Act comes after the small business fraternity raised voice about technical issues with the first Program and restricted use amidst a global health emergency.
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Published on June 5.