On Friday, June 5th, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020. This law updated some of the key structural elements of the Paycheck Protection Program (PPP) to allow more businesses to receive full forgiveness of the funds received from the program.
A drive to entice multinationals to move overseas manufacturing operations to the U.S. has gained traction with both parties on Capitol Hill as they frame competing plans for new tax incentives to include in possible virus relief legislation.
Many aspects of business changed over the last three months. Between shelter in place orders, a slowing economy, and regulatory changes under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), we will feel the effects for months.
Treasury issued a significant amount of new information on Wednesday, May 13th. In addition to updating their FAQs over the Paycheck Protection Program (PPP) they also issued a new Interim Final Rule dealing with potential Loan increases.
In recent weeks, Treasury and the SBA have been requesting that companies receiving funds under the Paycheck Protection Program (PPP) review their certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Treasury then gave borrowers until May 14, 2020 to return funds, if they believe that the certification was not made in “good faith”.
In response to the shortage of Personal Protective Equipment (PPE) and other hygiene products such as hand sanitizer caused by the coronavirus pandemic, many companies are pivoting resources toward the manufacture of these much needed products.
The most publicized part of the Coronavirus Aid Relief and Economic Security Act (CARES act), was the Paycheck Protection Program (PPP). This program was designed to help small businesses survive the shutdown and economic uncertainty generated by the Coronavirus. However, the program has been saddled with bad press and implementation issues from the beginning.
Under the CARES Act, Congress appropriated $349 billion in loans to small businesses under the Payment Protection Program (PPP). There are additional programs and tax provisions that companies should be aware of to use instead of or in conjunction with PPP loans.
Should you repay your Paycheck Protection Program Loan in the next few weeks? With notable companies such as Shake Shack and Ruth’s Chris receiving these loans, Dave answers this question and more in COVID-19 Edition #6 of McGuire on the Wire.
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Dave discusses if Notice 2020-32 follows congressional intent in the COVID-19 Edition #5 of McGuire on the Wire
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Paycheck Protection Program Flexibility Act
On Friday, June 5th, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020. This law updated some of the key structural elements of the Paycheck Protection Program (PPP) to allow more businesses to receive full forgiveness of the funds received from the program.
The PPP possibly the most heralded portions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This program was designed to allow businesses to keep employees on payroll during the economic fallout of the Coronavirus economic slowdown. For small businesses, the PPP allowed the business to take out a loan equal to 2.5 months of payroll. Under the original Law, the amount of the loan utilized over 8 weeks for payroll, rent, and utilities would be forgiven. Just as the 8-week “covered period” comes to an end for many businesses, a new law was passed making some significant structural changes.
The biggest change in the PPP Flexibility Act is the 8-week “covered period” has expanded to 24-weeks. This gives businesses three times the amount of time to spend the funds to reach full forgiveness. For companies that furloughed staff this provides the opportunity for those businesses to receive forgiveness without returning to full staffing in the near future. Additionally, the PPP required that companies return to full staffing or see a reduction in their forgiveness. Under the CARES Act this return to full employment was required by June 30th. For many businesses in states that are still shut down, or in phased reopenings, the June 30th date would be hard to meet. As such, the PPP Flexibility Act extends the date for return to full employment to December 31st. This means that a company that is running with reduced staffing, may be able to continue to operate at a reduced headcount until the end of the year and receive full forgiveness.
Additionally, the Act addresses the 75% test. The CARES Act stated that businesses would be forgiven for the amount utilized for payroll, utilities, rent, and mortgage interest. However, in Treasury’s interpretation 75% of the amount forgiven had to be utilized for payroll. This means that companies with high rent payments might see a reduction in forgiveness if more than 25% of the covered payments were for rent or utilities. In the new law, this 75% test is reduced to 60%. The reduction will allow more companies to reach full forgiveness.
For companies that have planned for the 8-week period can still choose to follow the original rules without change. However, for companies that need more time to spend the funds, the Paycheck Protection Program Flexibility Act provides them the opportunity to reach full forgiveness as well.