Trump Signs New Law Relaxing PPP Rules: What You Need to Know

The new Paycheck Protection Program Flexibility Act (PPPFA) attempts to address many concerns around the PPP loan program aimed at providing COVID-19 relief. The post Trump Signs New Law Relaxing PPP Rules: What You Need to Know appeared first on AllBusiness.com. Click for more information about Neil Hare. Copyright 2020 by AllBusiness.com. All rights reserved. The content and images contained in this RSS feed may only be used through an RSS reader and may not be reproduced on another website without the express written permission of the owner of AllBusiness.com.

Trump Signs New Law Relaxing PPP Rules: What You Need to Know

In a rare display of bipartisanship, on June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA) in an attempt to address many concerns expressed by the small business community around the Paycheck Protection Program (PPP) aimed at providing COVID-19 relief.

On May 27, 2020, the House passed the PPPFA by 417-1 and the Senate approved it by unanimous consent on June 3. The new law addresses the following flaws in the original PPP program created under the CARES Act:

1. PPPFA changes amount of loan needed for payroll to 60%

The biggest complaint around the PPP loan program was that it required businesses to spend 75% of the loan on payroll. For those businesses shut down due to COVID-19, this meant playing the role of unemployment office, paying their workers to stay home and do no work. The PPPFA reduces the amount of the loan needed to be spent on payroll from 75% to 60%, thus increasing the amount of funds available for other expenses from 25% to 40%.

While this new breakdown was less than the 50-50 split business groups advocated for, it is still an improvement. However, the law does not change the list of expenses eligible for forgiveness. It still includes rent, mortgage payments, utilities, and interest on loans. Again, this is quite a restriction on businesses that need funds for inventory, personal protection equipment, expenses around remote working, and other needs. Business groups will continue to lobby to expand eligible expenses.

2. PPPFA extends time period to use funds from 8 to 24 weeks

The second biggest issue around PPP was that it required businesses to spend the funds in the eight-week period from the date funds were received. For a business shut down by government mandate, this amounted to spending funds when, perhaps, conserving them was in order. Business owners clamored to have the flexibility to spend the loan after reopening, especially on payroll when workers returned to work and not sitting idle.

The PPPFA fixed this by extending the time period to spend the loans to 24 weeks. While businesses will still need to spend the money on payroll and authorized expenses, they now have until the end of 2020 to do so. Presumably, this will make receiving complete loan forgiveness more likely since the loan amount was based on one month of 2019 payroll multiplied by 2.5, which equals approximately 10 weeks. Businesses should now have the flexibility to spend the PPP funds when they like for the remainder of the year. And, another positive caveat: the PPPFA also does not require businesses to wait for 24 weeks to apply for forgiveness and can still do so after eight weeks if they prefer.

3. PPPFA pushes back a June 30 deadline to rehire workers to December 31, 2020

Small businesses took issue with the PPP requirement that all workers had to be rehired by June 30, 2020, in order for their salaries to count towards forgiveness. Many businesses were concerned they might not be open, or certainly not at full capacity by this date, and would once again, be required to pay employees for not working. Under the new law, businesses now have until December 31, 2020, to rehire workers in order for their salaries to count towards forgiveness.

It is important to note, however, that the law did not change how salaries are calculated towards forgiveness. The payroll calculation used in the loan application still applies to the forgivable amount. So, employee compensation eligible for forgiveness is still capped at $100,000, and until further guidance, employer owners and contractors are still capped at $15,385. Presumably with the new law, however, having an extra six months of expenses eligible for forgiveness will make up for any gaps and ensure 100% forgiveness of the loan.

4. PPPFA eases rehire requirements

As the intent of PPP was to keep the same number of employees on the payroll as was used to calculate the loan, it required a business to rehire the same number of full-time employees or full-time equivalents by June 30, 2020. The only exception to this rule was if an employer could document in writing an attempt to rehire an employee who rejected this offer.

The new law makes two significant changes to these requirements. First, it extends the rehire date to December 31, 2020, and second, it adds additional exceptions for a reduced head count. The law states a business can still receive forgiveness on payroll amounts if it:

  • Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
  • Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
  • Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.

It remains unclear how to “demonstrate the inability to rehire similarly qualified employees” or what the standard “to demonstrate the inability to return to previous levels of business activity” would be, but hopefully forthcoming guidance will elaborate. The good news appears to be that even with a reduced head count based on these exceptions, if 60% of the loan is still used on payroll throughout the remainder of 2020, it will be forgiven. Certainly, a business will need to document in writing as thoroughly as possible its efforts to rehire employees through December 31, 2020.

5. PPPFA extends the repayment term from 2 years to 5

The new law also eases repayment terms in the event loans or portions of them are not forgiven. A business now will have five years at 1% interest to repay the loan. Further, the first payment will be deferred for six months after the SBA makes a determination on forgiveness. Since under current regulations your bank has 60 days to make a forgiveness determination and the SBA an additional 90 days, this means you could have up until May of 2021 to make the first payment on the loan.

In addition, the PPPFA also allows borrowers to take advantage of the CARES Act provision allowing deferment of the employer’s payroll taxes for Social Security. Previously, PPP did not permit deferment of these taxes on the forgivable portion of the loan.

Treasury guidelines still provide for SBA loan audits

While this new law certainly addresses many concerns, and should ease the requirements for full forgiveness of PPP loans, it is not a complete fix. Namely, it does not address the issues around SBA audits of loans as outlined in the Treasury Department “Interim Final Rules” on PPP loans issued late on May 22.

According to PPP Loans FAQs, the SBA could audit any loan at its discretion to determine if “the borrower may be ineligible for a PPP loan, or may be ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower.” This includes loans under $2 million, which have a “safe harbor” on the issue of whether economic uncertainty made the loan necessary.

So, despite the changes to PPP, the SBA can still look at how a business calculated the original loan amount and review whether it had “access to credit elsewhere” when determining if all or a portion of the loan should be forgiven. All businesses, especially those with loans in excess of $2 million, should prepare to explain why the funds were financially necessary at the date of application.

This comes down to the issue of liquidity. Did a business have large cash reserves or lines of credit it could have tapped to stay afloat during the shutdown? If so, the SBA may determine the borrower was ineligible for the PPP loan. While borrowers should not worry about criminal penalties if such a determination is made, outright fraud excepted, they could be required to repay the loan in full.

It remains doubtful that the SBA will conduct many audits of PPP loans, as almost 4.5 million have been doled out, and it simply does not have the capacity to review many. That being said, thorough documentation of the financial health of the business at the time of the loan application and detailed tracking of how the loan is expended will prevent any issues down the road. It is important to note that the responsibility for accurately calculating the loan amount and the forgiveness amount rests with the borrower.

Conclusion

All in all, the PPPFA is a win for small businesses. The law will ease many of the burdens placed on businesses that received PPP loans, and for many that may still apply for them. It is also positive that politicians on both sides of the aisle listened to small business owners and took quick, decisive action, putting their constituents before partisan wrangling.

There are still plenty of questions left unanswered and fixes necessary, however, so more regulations will be forthcoming with more changes to the PPP program for sure.

Other Articles From AllBusiness.com:

  • New Treasury Guidance Provides Safe Harbor for PPP Loans
  • Small Business Relief: COVID-19 Resources for Startups
  • Financial Help for Freelancers and Independent Contractors Affected by the Coronavirus Crisis
  • What Advice Are Venture Capitalists Giving to Startups in Light of the Coronavirus?
  • 5 Ways to Improve Employee Communication During the COVID-19 Crisis

The post Trump Signs New Law Relaxing PPP Rules: What You Need to Know appeared first on AllBusiness.com. Click for more information about Neil Hare. Copyright 2020 by AllBusiness.com. All rights reserved. The content and images contained in this RSS feed may only be used through an RSS reader and may not be reproduced on another website without the express written permission of the owner of AllBusiness.com.

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3 Small Business Financing Alternatives to the Paycheck Protection Program

The Paycheck Protection Program has proven to be both confusing and inequitable to small businesses that apply. Here are alternatives that business owners should consider to secure liquidity. The post 3 Small Business Financing Alternatives to the Paycheck Protection Program appeared first on AllBusiness.com. Click for more information about Guest Post. Copyright 2020 by AllBusiness.com. All rights reserved. The content and images contained in this RSS feed may only be used through an RSS reader and may not be reproduced on another website without the express written permission of the owner of AllBusiness.com.

3 Small Business Financing Alternatives to the Paycheck Protection Program

By Rick Lazio

As the United States has scrambled to address the economic fallout from the COVID-19 pandemic, many business owners and their employees are left confused and frustrated by the response so far. The federal programs created to provide capital to the businesses that are struggling due to lockdown have received widespread criticism.

The Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) are the most sought out relief programs, but there is widespread confusion and criticisms of which companies are getting the loans, alongside funding issues. Even the companies that have already claimed EIDL or PPP loans are already looking ahead for other sources of capital to keep their businesses running.

But what is reasonably out there and available for small and medium-sized businesses that some business owners might simply just not know about? There are several options—with some designed specifically for COVID-19 relief, and others that have been around for a while which may be uniquely accessible now.

Main Street Lending Program

The Main Street Lending Program (MSLP) is an attempt by the Federal Reserve to infuse capital directly to distressed businesses.

The total funds allocated by the CARES Act is up to $600 billion. Where the PPP loans, administered by the Small Business Administration, were only eligible to small businesses with less than 500 employees, the MSLP is open to businesses with either 15,000 employees or less; or businesses that had less than $5 billion in revenue for 2019.

The loans can be issued by Eligible Lenders as long as they have the following features:

  • Minimum loan size of $500,000
  • Maximum loan size is lesser of $25 million or an amount when added to borrower’s existing outstanding debt, does not exceed four times borrowers 2019 EBITDA
  • 4 year maturity
  • Deferred principal and interest for one year
  • Adjustable interest rate of 1 month or 3 month LIBOR + 300 basis points
  • Is not a subordinate loan at origination
  • Prepayment permitted without penalty

As of this writing, with current LIBOR rates, interest rates for MSLP loans would be under 4%. There are also some caveats to note.

First, borrowers must certify that they can meet their financial obligations and not declare bankruptcy in the next 90 days. Borrowers must also make “commercially reasonable” efforts to maintain payroll and retain employees during the loan period.

Other Articles From AllBusiness.com:

  • New Treasury Guidance Provides Safe Harbor for PPP Loans
  • Small Business Relief: COVID-19 Resources for Startups
  • Financial Help for Freelancers and Independent Contractors Affected by the Coronavirus Crisis
  • What Advice Are Venture Capitalists Giving to Startups in Light of the Coronavirus?
  • 5 Ways to Improve Employee Communication During the COVID-19 Crisis

Employee Retention Credit

An overlooked provision of the CARES Act is the Employee Retention Credit (ERC). The ERC allows employers to claim a fully refundable tax credit that is equal to up to 50% of qualified wages paid to employees, up to $5,000 per employee per quarter. This credit is applicable to all qualified wages paid between March 12, 2020 and January 1, 2021.

Unlike the PPP, there are no company size or revenue limitations for companies to claim, as long as the business has had to suspend operations due to governmental COVID-19 restrictions or if the company has faced significant decline in gross receipts. A significant decline would mean the employer’s gross receipts in a quarter in 2020 were less than 50% for the same calendar quarter in 2019.

There is a strong reason why ERC has not received much attention–that if a business owner claims PPP, they cannot also claim the Employee Retention Credit. The advantages, however, are that the ERC is not a loan that needs to be paid back, and there are no associated funding issues like what PPP and EIDL have faced.

R&D Tax Credit

In 1983, after successive recessions, Congress introduced an unemployment fighting measure for the automotive industry called the R&D Tax Credit. The recessions of the early 1980s caused mass layoffs in the automotive industry, with unemployment hitting a whopping 24% in that industry compared to the overall peak unemployment rate of 10.8%. The R&D credit is a payroll credit that was designed to bring technical jobs back to the industry, and by the end of 1984, employment for the sector had rebounded dramatically with unemployment in the 6% range.

This success has led to the R&D credit being viewed by Congress as an effective job saving tool, and Congress throughout the years has continually reprogrammed and tweaked the credit to extend beyond automotive. Today, the R&D credit is now applicable to a wide range of industries from software and tech to agriculture. To qualify, a company simply needs to be able to show development or design of a new product or process, or the enhancement of an existing product or process, that is new to their individual business.

For example: If a software company creates a new program, or if a manufacturing company increases its efficiency by introducing new machinery, or if a farmer experiments with a new type of feed with his livestock to increase yield, they could all claim the benefit of the R&D credit.

What makes it particularly appealing now is that the IRS allows for a three-year lookback period–so any work a business has done since 2017 might qualify for a healthy tax credit at their next filing–which may be the type of liquidity that could make or break a business.

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About the Author

Post by: Rick Lazio

Rick Lazio is a former U.S. Representative from New York serving in Congress from 1993-2001. While there, he became a strong advocate for small businesses by sponsoring the successful Small Business Tax Fairness Act. After Congress, Rick moved to the private sector working for JP Morgan Chase as a Managing Director and then Executive Vice President. Rick is committed to his continued interest and support of small to mid-sized businesses by brokering his insight and experience in the public and private sectors to provide strong incentives for job growth. This interest has extended into his civic and philanthropic work in New York with the Committee for Economic Development and the Association for a Better New York.

Company: alliantgroup
Website: www.alliantgroup.com
Connect with me on Twitter and LinkedIn.

The post 3 Small Business Financing Alternatives to the Paycheck Protection Program appeared first on AllBusiness.com. Click for more information about Guest Post. Copyright 2020 by AllBusiness.com. All rights reserved. The content and images contained in this RSS feed may only be used through an RSS reader and may not be reproduced on another website without the express written permission of the owner of AllBusiness.com.

Source : All Business More   

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