On June 5, President Donald Trump signed the Payment Protection Program Flexibility Act (PPPFA). Aimed at providing assistance to small businesses in times of pandemic, the Paycheck Protection Program (PPP), created under the CARES Act, brought with it many questions from the small business community.
In order to correct the program’s shortcomings and respond to inquiries from the beneficiary class, the new PPP flexibility law facilitates total debt forgiveness by modifying some rules, including:
- reduction of mandatory payroll expenses to 60% of the loan amount (before 75%);
- up to 24 weeks for companies to spend the loan amount (instead of the 8 weeks initially given);
- companies can re-hire workers until December 31, 2020 so that their wages are counted in forgiveness;
- the time for payment of the loan has been extended from two to five years, maintaining the original interest rate of 1%.
Michel de Amorim, a CPA and partner at Drummond Advisors, commented that “the new law offers the opportunity to forgive PPP debt for a greater number of companies, which due to the crisis had to reduce their payroll by more than 25% , expected initial limit.”
Small business owners who intend to apply for debt forgiveness must submit the Loan Forgiveness Application, published by the US Small Business Administration (SBA), and send it to the lending bank. The application presents the main criteria based on the types of expenses that are forgivable.
Although the loan amount can be used in payroll, mortgage interest, rent and utility costs, not all these expenses qualify for forgiveness.
The SBA may analyze how the original loan amount was calculated and review whether that company had other means of accessing credit to determine whether the total or only part of the loan should be forgiven. All companies, especially those with loans above US$ 2 million, must be prepared to explain why the funds were needed at the time of application.
It is important to highlight that the adequate documentation and the control of expenses are fundamental for the success of a company in terms of the full forgiveness of the debt obtained in the PPP program.
Read the full law here.