SBA PPP Forgiveness
We're here to help you along the way
Payroll Protection Program Expansion
Presenting the Paycheck Protection Program Expansion Act of 2020:
Just when we thought we understood all the twists and turns of PPP forgiveness, Congress has changed the guidance, again. The expansion does provide enhanced flexibility for business owners.
At First National Bank of South Miami, we have worked to provide you timely and accurate information; we provide this update in anticipation of President Trump’s signature. Obviously, if he does not to sign this legislation into Law, then this will not be valid.
Since you have all become “experts” in the PPP and PPP Forgiveness, we will focus only on contrasting the changes. If you are still not an expert, then you can listen again to the May 21, 2020 recorded webinar which is available through our website at www.fnbsm.com.
24-week “covered” or “alternative covered” period vs. 8 weeks
This provision is in response to business owners that voiced concern about having to pay individuals when a business was not even opened and further that they would not have the money when the business was ready to reopen.
Under PPP Expansion, the covered period tripled from 8 weeks to 24 weeks.
You may recall the terms “covered” or “alternative covered” period from our webinar. This is an especially important distinction of the PPP because it is the period that you must spend all your PPP loan dollars in order to receive forgiveness and it started the day you were first funded.
60/40 (with a twist) instead of 75/25
You will recall that to receive any forgiveness from your PPP loan, 75% of the amount applied for forgiveness had to be spent on payroll costs. Under PPP Expansion, that requirement was dropped to 60% for payroll costs.
But here is the twist; it is now a cliff! What that means is that the forgiveness application is all or nothing.
Under the prior law, the 75% test was based on the amount of forgiveness applied for and NOT on the whole loan amount. Obviously, if you applied for forgiveness for the entire amount of the PPP Loan this becomes irrelevant, now it seems that you will need to apply for full forgiveness, and you will be required to spend 60% on payroll costs.
Some believe that the “all or nothing” requirement may change, but as it stands, this is what the law states.
Penalties, and Calculations were extended to Dec 31, 2020 (vs. June 30, 2020) Safe Harbor
This means that the amnesty rehire date (Safe Harbor) was moved out to the end of the year. You will recall that this impacted two important aspects of the PPP forgiveness application:
The FTE Test – which could impact the percentage of the forgiveness amount based on the quotient resulting from dividing FTE during the “covered” or “alternative” covered period by the FTE during the “Base” period.
The Salary Reduction Test – which would impact the forgiveness amount by reducing that amount from the penalty created by the difference between the affected employee payroll during the “covered” period or “alternative covered” period vs. 75% of the base period salary for a comparable timeframe.
5-year maturity vs. 2-year maturity
Under the PPP Expansion NEW (funded after the law is passed) applications for PPP would have a 5-year maturity from date of funding vs. the 2 years previously set by the SBA. It is important to note here two things.
- Applies only to NEW loans approved and funded after the enactment of this legislation (that is when President Trump signs this into law – he has not signed it yet)
- If you apply for and receive full forgiveness of the PPP loan amount this is irrelevant but, if you have a balance left over after you have been given partial or no forgiveness, then you would have a longer timeframe to repay.
Extension of deferral from 6 months to 12 months
Simply put, you have 12 months from funding to apply for forgiveness instead of 6 months and you will not be required to make any payment of principal nor interest during this period. Even if you apply and receive only partial forgiveness, you will not need to make a payment on the remaining balance until 12 months from date of funding.
Exemption based on employee availability
You may recall that there is a requirement that you have at least the same number of employees during the “covered” period or “alternative covered” period or you face a reduction in the forgivable amount (unless you rehired to pre-COVID levels by June 30, now Dec 31) – The FTE test.
The PPP Expansion Act now provides for an additional exemption (other exemptions listed in the PowerPoint presentation on the FNBSM website and discussed in the recorded webinar).
- The business owner can document (remember we have been saying that documentation is critical!)
- An inability to rehire an employee who was employed before February 15, 2020,
- An inability to rehire similarly qualified employees for unfilled positions on or before Dec 31, 2020.
- OR –
- The business owner can document an inability to return to the same level of business activity as such business was operating at or before February 15, 2020 due to compliance with requirements established by or guidance issued by:
- Secretary of Health and Human Services or
- Director of Centers for Disease Control and Prevention or
- Occupational Safety and Health Administration
Borrowers who have received a PPP Loan before the enactment of PPP Expansion can choose between the 8-week period or the modified 24-week period. We recommend that if you received the loan, spent the dollars appropriately (per PPP guidance), do not have any reductions due to the PPP forgiveness tests (FTE and salary reductions), that you apply for forgiveness based on the 8 weeks and put this behind you.
First National Bank of South Miami’s team is here to help you through this time and through this process. We have worked diligently to provide you timely and accurate information. Your individual situation may require more personalized attention. We continue to recommend that you meet with and discuss your particular situation with your accountant and or attorney to ensure that you do what is in the best interest of your business.
Topic: PPP Loan Forgiveness Guidelines
Date Recorded: Jun 3, 2020 09:47 AM Eastern Time (US and Canada)
Topic: PPP Loan Forgiveness Guidelines
Date Recorded: May 21, 2020 12:52 PM Eastern Time (US and Canada)
Program in participation with the SBA.