I have waited to send out an update pending the changes expected to be implemented by Congress and the SBA. Last night, the senate passed the bill previously passed by the House, and is awaiting signature by President Trump. While it is expected that the SBA will issue an FAQ to further clarify certain areas, here is a summary of what you need to know.
- The time period you have to spend the funds has been extended from 8 to 24 weeks (or December 31, 2020, whichever is earlier). This means that there is no longer a concern over how to make sure you spend all of the funds within the 8 week period.
- Any amount not forgiven will be payable over five years (previously 2 years)
- Payments will begin after 6 months from the date that the forgiveness is determined, or 10 months after the covered period if the borrower fails to ask for forgiveness.
- The calculation for Full-time equivalent (FTE’s) has also changed.
- The safe harbor period for re-hiring employees to avoid penalty has been extended from June 30, 2020 to December 31, 2020
- If an employee voluntarily quits, or was dismissed with cause, you will not be penalized for the reduction in FTE’s
- The amount of the loan that is required to be spent on payroll has been reduced from 75% to 60%.
- Borrowers can now take advantage of Section 2302 of the CARES Act, which allows for the delay in payment of payroll taxes.
Recent guidance also allows you to choose an “alternate covered period” so that you can cover as much payroll as possible, but with the extension to 24 weeks, this is probably no longer needed.
If you are self-employed, we are waiting on more information to determine what your forgiveness application will look like.
Remember, under the original guidance, payroll paid with the loan proceeds was limited to $15,385 per employee (annualized, that equals $100,000). It is unclear if the extension of the covered period to 24 weeks increases this amount, but we expect that it will.
The SBA does have a forgiveness application available, but our recommendation for now is to wait until they issue further guidance before doing anything. Given the recent amendments to the law, the application is already out of date. We also assume that just like the application process, most banks will have their own forgiveness application rather than use the one issued by the SBA.
Once you apply for forgiveness, the bank has 60 days to review the application, then the SBA gets an additional 90 days to make a determination. The SBA also has 6 years to audit any loan, so plan on keeping your records for at least 6 years.
If you have not yet applied for a PPP loan, funds are still available.
As always, if you have any questions, please call or email our office.