8-Week Forgiveness Period Extended to 24 Weeks
Under the original law, small businesses that received a PPP loan had eight weeks to use the funds, and the entire loan could be forgiven as long as they used the loan proceeds for qualifying purposes. This eight-week duration is known as the "covered period."
The new legislation expands the eight-week duration to 24 weeks, or December 31, 2020, whichever comes first. Any funds not used within the "covered period" for qualifying purposes are not eligible for forgiveness and must be paid back by the small businesses. Many small businesses had their PPP loans funded in April and May. Some were not able to open up for business due to health or legal concerns, while others that remained open had only a fraction of market demand that they had pre-pandemic.
These were the businesses hurt the most by the pandemic, and Congress has dramatically improved their futures by extending the covered period.
Steven Nicokiris, CPA, Managing Director, and Shareholder at the New York office of CBIZ MHM LLC, is calling the new legislation a “game-changer” for small businesses that have been the most affected in recent times. Nicokiris also notes that realistically, it will take months for many NYC businesses to bring back employees as their businesses return to life.
75% Payroll Requirement Reduced to 60%
The second significant change to the PPP is a reduction from 75% to 60% in the payroll cost rule. This new rule requires forgiveness requests to comprise at least 75% of payroll costs for a PPP loan. The other 25% may be used for other qualified redemption purposes, such as interest on mortgages, rent, and utilities. Small business owners are eligible to have more of their PPP funds forgiven by reducing the payroll cost requirement to 60%. Many small businesses with higher rent or mortgage payments found it challenging to use 75% of their PPP funds within the eight weeks covered period.
This new content of the "covered loan amount" is a deviation from previous SBA guidelines, which stated that 75% of the "request for repayment" must be for payroll costs. The word of the new bill implies that a small business has the right to forgiveness only if it uses 60% of the amount of the loan on payroll costs.
On the other hand, the prior SBA guidance did not consider the amount of the loan and instead looked only at the amount that a small business asked to be forgiven. There is a significant variation between the two: you can still decrease the request for forgiveness depending on what you pay to fulfill the criteria of 75%. Again, if you get the loan, you can't reduce the amount of the loan. You must spend 60% of that sum to get any forgiveness at all.
Bringing Back Workers
The initial PPP legislation decreased the amount available for parole if the small business did not bring back the same number of pre-pandemic workers they had. The upcoming law has made changes to the requirements for returning workers and gives 2020.
The bill also provided additional exceptions to the new law that exempts a company from bridging back employees if they can log being unable to re-engage a worker (e.g. the worker declined an invitation to return) or a similarly qualified worker. They may also be excused from getting their workforce back to pre-pandemic levels if they can document a COVID-19-related health or safety requirement that restricted their business.