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Paycheck Protection Program Loan relief passed by Congress

The Senate passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which was previously passed by the House of Representatives on June 3, 2020.  President Trump is expected to sign the legislation.

Here is a URL for the text of H.R. 7010.  https://www.congress.gov/bill/116th-congress/house-bill/7010/text

The legislation relaxes the requirements to qualify for forgiveness of Paycheck Protection Program (PPP) loans.

Here is a summary of key points:

  • The time in which businesses that receive a PPP loan may count their expenses that qualify for loan forgiveness is extended from 8 to 24 weeks, and the period ends no later than December 31, 2020.
  • Businesses that received a PPP loan before the date of enactment may elect to keep an eight-week period to count expenses that qualify for loan forgiveness.  (A borrower might want to make this election because it paid the required expenses and can apply for forgiveness sooner.)
  • The portion of the loan proceeds used to pay payroll costs is decreased from 75% to 60%.  Under the language in the Act, if the business doesn’t use at least 60% of the loan funds for payroll costs, the loan doesn’t qualify for forgiveness.  Congress is expected to pass a technical correction later to permit a sliding scale forgiveness if the 60% threshold isn’t met.  This means up to 40% of loan proceeds may be used to pay rent expenses, qualified mortgage interest and utilities and still qualify for full loan forgiveness.
  • Borrowers may use the earlier of the date 24-weeks after receiving the loan or December 31, 2020 to meet the requirement to restore their workforce and wages to pre-pandemic levels required for full forgiveness.
  • Two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce were included in the legislation.  (1) The borrower was unable to find qualified employees.  (2) The borrower was unable to restore business operations to February 15, 2020 levels due to COVID-19 related operating restrictions.
  • New borrowers have five years to repay the unforgiven portion of the loan instead of two.  Those who received loans before the date of enactment may extend the repayment term of the unforgiven portion of their loans from two to five years, if the lender and borrower agree.  The interest rate remains 1%.
  • Under the CARES Act, businesses that received a PPP loan didn’t qualify for delayed payment of employer taxes.  That prohibition is repealed under the Paycheck Protection Program Flexibility Act.

This legislation should enable many more PPP loan borrowers to qualify for loan forgiveness.  The Small Business Administration will have to update the forms that it just issued to apply for loan forgiveness.

Tax and financial advice from the Silicon Valley expert.