What Small Businesses Should Know about the PPPFA
On June 5th, 2020, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law, with the hopes of easing concerns expressed by the small business community around the Paycheck Protection Program.
So, what exactly does this change?
- Loan Amount Used for Payroll Decreases to 60%
Originally, the Paycheck Protection Program required businesses to spend 75% of their loan amount on payroll. PPPFA reduces this amount from 75% to 60%, which also increases the funds available for covering other expenses.
It’s important to note though, the law still stands regarding what expenses are eligible to achieve loan forgiveness. The list includes rent, mortgage payments, utilities, and some loan interest.
- PPPFA Extends the Time Frame to 24 Weeks
The PPPFA has extended the time period for small businesses to actually use the funds from 8 weeks to 24 weeks. The goal is that this makes it easier for companies to receive loan forgiveness since businesses should now have the flexibility to utilize their PPP loan for the rest of the year. However, as mentioned above, the eligible expenses for loan forgiveness have not changed.
- Deadline to Rehire Workers is Extended to December 31st, 2020
Initially, the Paycheck Protection Program required workers to be rehired by June 30th, 2020, for their salaries to count towards loan forgiveness. This rehiring deadline has now been extended to December 31st, 2020. This should help ease some concerns for businesses that aren’t sure when they will be reopen, or when they will be back to full capacity.
However, just to note, the PPPFA did not change how salaries are calculated towards loan forgiveness. The payroll calculation and income caps still apply. So, employee compensation eligible for loan forgiveness is still capped at $100,000 and until further guidance, owners and contractors are still capped at $15,385.
- Repayment Term Increased to 5 Years
The most enticing part of the PPP loan is that it is eligible for loan forgiveness. But, for those that may not be forgiven, PPPFA increased the repayment term from 2 years to 5 years. With this higher repayment term, the interest rate is staying constant at 1%.
While there are still plenty of questions around the PPP loan and more importantly, PPP loan forgiveness, the PPPFA is a step in the right direction. Hopefully, the PPPFA provides the needed flexibility for small businesses to get the most out of their PPP loans.
If you’d like to discuss how the PPP loan or the PPPFA might impact you or your business, please reach out to us at pwa@keatinginc.com.
Opinions expressed are those of the author and are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
