Congress Loosens PPP Loan Restrictions

June 5, 2020 - Congress recently passed legislation to loosen some of the restrictions that came with the popular Payroll Protection Program (PPP). The president signed the bill today.

The new law runs only about 1,000 words, but contains several major changes that vastly extend the terms of the program:

  • The new law lets PPP loans run for 24 weeks—previously the term had been eight weeks. Notes Wall Street Journal, this gives "small businesses more time to use the money and still have the loans forgiven while helping them better navigate the uncertainties around reopening."
  • The law extends the deadline to rehire workers to December 31 for those companies that want to qualify for loan forgiveness. Previously, this deadline was June 30.
  • The law lowers the bar for PPP funds that must be used for payroll to 60 percent for those businesses that want forgiveness. Previously, it was 75 percent. But this is a "cliff," according to guidance from the American Institute of Certified Public Accountants (AICPA, "Borrowers must spend at least 60% on payroll or none of the loan will be forgiven." The previous "sliding scale" calculation method may return in future legislative tweaks, however.
  • Previously, to be eligible for forgiveness, borrowers had to show they kept employees or rehired them within a set period. While this is still true, there is some leeway in the new law: "The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-19-related operating restrictions," according to the AICPA.
  • Borrowers can now take up to five years to repay the loan, instead of the previously established two years. The interest rate remains 1 percent.
  • The new law permits PPP loan recipients to also delay payment of their payroll taxes. This was previously prohibited.

More guidance and clarifications are likely to come. Until then, loan recipients may want to check AICPA guidance or the bill itself.

Meanwhile, loan recipients planning to submit forms for loan forgiveness should tread carefully. It may take some time for the Small Business Administration to update its form to align with the new, more flexible terms.

R&A’s advisors are available to help you understand how these changes may affect you.

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About this Author

Allison and her team provide a comprehensive suite of outsourced accounting and financial services to clients. Prior to joining R&A in June 2018, Allison worked in the nonprofit sector for thirteen years. Her experience also includes more than ten years of teaching at the university level. Allison holds a bachelor’s degree from the University of Chicago and master’s degrees in social work from Eastern Washington University, business administration from Gonzaga University, and professional accounting from Colorado State University. Allison is an avid basketball and baseball fan who also enjoys travel, home improvement, and spending time with her family.