Here's how to get your PPP loan forgiven Crains New York Business June 23, 2020

The federal government has finally offered some clarity on how mom-and-pop businesses can avoid repaying their bailout loan—a major sticking point in the Paycheck Protection Program.

In the past month officials in the Small Business Administration and the Treasury Department have worked with Congress to make much-demanded changes to the law, which culminated in the PPP Flexibility Act signed by President Donald Trump on June 5.

With all remaining PPP loan applications expiring next week—June 30 is the last day to apply—here are the changes small-business owners need to know to receive forgiveness on current or future loans.

RELATED ARTICLES
 Read this week’s issue of Crain’s New York Business online
FAQ: A guide to SBA's disaster loans
 Here's why the $349 billion PPP ran out of money
The amount one is required to spend on payroll has shifted

The first iteration of the PPP loan required small-business owners to spend 75% of the loan money they received on employee payroll before it could be considered for forgiveness. After an outcry from small-business owners, who considered the stipulation restrictive in light of a host of other operating costs, the revised PPP loan shifts that requirement to 60%.

Furthermore, even if a borrowing small-business owner uses less than 60% of the loan amount on payroll, he or she will still be eligible to have a portion of the entire loan forgiven. The other expenses that can be funded from the remaining 40% of the loan money and still be forgiven are rent, mortgage payments, utilities and interest on loans. Expenses outside this realm are not forgiven.

There is a new PPP loan forgiveness 'safe harbor' rule

This change in the loan terms protects businesses that were unable to hire employees back to Feb. 15, or pre-Covid-19, levels from being penalized on their loan amount, as payroll is tied directly to the employee amount an owner can or had hired before the shutdown. Businesses have been given an extension to Dec. 31 to hire back employees they had on staff before February of this year. Basically the "safe harbor" rule applies to those small businesses that are still shut down. They can apply for a full PPP loan and not feel forced to hire back staff when they are not open. 

The rule has a second component. Businesses that hire employees back on salaries lower than before the pandemic—because of a decline in business activity or a lack of revenue—will not be penalized on their loan amount as long as they can document their drop in full-time employee salary was related to Covid-19 restrictions.

The requirement to use funds within eight weeks of receiving the loan has been moved to 24 weeks

This is another important change to the program that could have ramifications on how much forgiveness is allocated to small-business owners. Borrowers who applied for and received PPP funds after June 5 will have 24 weeks (six months) until they need to spend the money. Those who received money before June 5 will still have eight weeks from the start of the loan to spend the money if they choose so, as they might find it advantageous to get it off their books. These borrowers are offered the flexibility to receive the 24-week extension. 

The repayment terms have been extended too

Small-business owners who received PPP money on or after June 5 will now have five years to repay the amounts of the PPP loan that are not turned into a grant through the forgiveness provisions. Those borrowers who received PPP money before June 5 must pay their nonforgiven portions of the loan back within two years, although they can work with the bank that provided the loan to get an extension.

PPP Forgiveness Application 3508EZ ( Revised 06.16.2020) by Janon Fisher on Scribd


Furthermore, the SBA has amended the law to allow deferments on payments on principal, interest and fees associated with PPP loans to the date the SBA remits the loan to the bank. Previously the period was six months from the date of the loan. This amendment extends the clock from ticking too quickly on when a borrower is expected to pay back these costs.

SBA offers 'EZ-Application' for eligible small- business owners

This three-page PPP loan application simplifies the paperwork process and is available to small-business owners who are either self-employed or have no employees, did not reduce the wages of their employees by more than 25%, or can prove they experienced a drop in business activity because of Covid-19 and did not reduce their business wages by more than 25%.

Letter