Small business owners, self-employed workers and freelancers received some welcome news when Congress passed the Paycheck Protection Program Flexibility Act. This law clarifies how businesses can qualify to have all or a portion of its Paycheck Protection Program (PPP) loan forgiven.
What You Need to Know
1. December 31, 2020, is the new deadline to spend loan proceeds.
When the PPP program was rolled out this spring, businesses were given 8 weeks after loan funding to use the loan's proceeds if they wanted to qualify for loan forgiveness. That timeline is now 24 weeks. Due to the extended stay-at-home orders and further assessment of the pandemic, the new deadline is now effectively December 31, 2020.
2. More non-payroll expenses qualify for forgiveness.
The original law required 75% of the loan proceeds to be spent on payroll. For businesses with high cost of goods sold or who had trouble convincing furloughed workers to return to work, hitting this 75% threshold was problematic. The new law reduces the amount of loan proceeds required to be spent on payroll to 60%.
3. More flexibility in fully restoring your workforce.
You now have through December 31, 2020, to restore your workforce levels and wages to the pre-pandemic levels required for full forgiveness.
There are three exceptions allowed for not having a fully-restored workforce by Dec. 31. You can adjust your loan forgiveness calculations because of:
· Employees who turn down good-faith offers to be re-hired at the same hours and wages as before the pandemic;
· Difficulty finding qualified employees;
· COVID-19 related operating restrictions
4. Loan terms extended.
For loans that do not qualify for forgiveness, borrowers now have up to five years to repay the loan instead of two. The interest rate remains at 1 %. Since your bank has 60 days to process your loan forgiveness application and the SBA has 90 days to process the request, your initial payment is now effectively due five to six months after submitting your forgiveness application.
What You Need to Do
- Download Form 3508EZ Application Form. If you are a self-employed worker, independent contractor or sole proprietor who has no employees, you may be eligible to use the EZ Loan Forgiveness Application.
- Download Regular Application Form. If you aren't eligible to use the EZ Loan Forgiveness Application, then you'll need to complete the regular loan forgiveness application.
- Be thorough with documentation. Take the time to make sure you have all the appropriate documentation before submitting your forgiveness application. Some documentation is not required to be filed, but must be retained by the business.
- Stay in contact with your lending institution about when and how to complete the loan forgiveness application, including which application form you should fill out. Only your lender can submit your forgive¬ness application to the SBA.
- Consider reaching out to your legislators to let your voice be heard on how you were impacted and to share your story on your PPP loan experience as several U.S. Senators indicated that there will be more changes in the future regarding the program.
