Good news for small businesses on loan forgiveness. Congress and the SBA have now loosened some of the restrictions, making it easier to receive forgiveness for some or all of the loans. Also, if you’re a freelancer or other self-employed person wondering if you’ll get forgiveness for loans taken out under the Paycheck Protection Program (PPP), yesterday brought good news! The SBA filed its 19th Interim Final Rule (IFR), scheduled to be published on Friday June 19th, focusing on revisions made from Paycheck Protection Program Flexibility Act (Flexibility Act) signed into law on June 5th. The unpublished version of the update ensures full forgiveness for self-employed, freelancers and independent contractors who took the maximum loan amount based on 2.5 times their 2019 monthly income. (Under previous rules, the eight-week limitation made it hard to get above the 75% payroll threshold.)
Here is what you need to know
Borrowers under the Paycheck Protection Program (PPP) can qualify for partial loan forgiveness if less than 60% of the PPP loan is used for payroll.
Legislation signed June 5, 2020, lowered 75% the minimum percentage of PPP funds borrowers have to spend on payroll costs to have the loans forgiven to 60%.
The covered period was extended for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement.
Borrowers that have already received PPP loans retain the option to use an eight-week covered period.
Provide a safe harbor from reductions in loan forgiveness based on reductions in FTE employees.
June 30, 2020, is the last day on which PPP applications can be approved.
A joint statement Monday from SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin clarified that partial loan forgiveness will also be available under the 60% threshold. Specifically, if a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.
New rules, guidance & applications coming
The SBA, in consultation with Treasury, will quickly issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing the amendments to the PPP made in the new law.
A Safe Harbor was implemented to protect borrowers from reductions in FTE employees. The Safe Harbor protects borrowers that are both unable to rehire individuals who were employees of the borrower on Feb. 15, 2020, and unable to hire similarly qualified employees for unfilled positions by Dec. 31, 2020 due to COVID-19 and safety requirements.
Increase to five years the maturity of PPP loans that are approved by the SBA (based on the date the SBA assigns a loan number) on or after June 5, 2020.
The deferral period was extended for borrower’s payments of principal, interest, and fees on PPP loans to the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).
What is PPP?
Congress established the PPP (Paycheck Protection Program) to provide relief to small businesses during the coronavirus pandemic as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The legislation authorized Treasury to use the SBA’s 7(a) small business lending program to fund loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.
PPP funds are available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including tax-exempt not-for-profits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees also can apply for loans in certain situations.
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