Understanding PPP Loan Forgiveness and Its Extension

The Paycheck Protection Program

The Paycheck Protection Program (PPP) has incentivized businesses to keep employees on their payrolls, thus making a substantial, positive impact on the economy throughout the downturn that the coronavirus pandemic has initiated. This is a groundbreaking program, and for entrepreneurs everywhere, it has represented an incomparable lifeline, enabling them to hold on to a sense of normalcy when it seems that across all sectors, normalcy has remained evasive. To take full advantage of the PPP, of course, you need to understand it – and understand how Congress has amended it recently to make it even more lucrative.

Before we go any further into the recent amendments to the PPP, we should review what the PPP is and why it is such an incredible deal. Classified as loans, the funds that the PPP is distributing are, in fact, forgivable. This means that if you qualify, you could accept your PPP loan funds in the same way that you would accept a stimulus check, on the assumption that you will not need to repay them or recuperate the funds after you have spent them. If you have watched your revenue dry up over the last few months, there is no overstating the importance of an influx like this.

Here is the thing: there are restrictions on PPP loans. While they can be forgivable, the reason that the government has classified them as loans is that they are not always so. In some circumstances, business owners do need to repay the funds that they receive through the PPP. You can be fairly certain, too, that if you use your PPP funds without qualifying for forgiveness, the government is going to come looking for you to make them whole again. Normally, if you are using your PPP funds for payroll, you will qualify for forgiveness. This is where the matter becomes a little more complicated, though.

Previously, business owners would take out a PPP loan, which would set an invisible clock off to ticking. This clock would run for eight weeks, after which the funds from the loan would have to be explained to be eligible for forgiveness. In essence, employers needed to use up the entirety of the loans within an extremely limited period of time or risk losing eligibility for forgiveness. Because of the other restrictions regarding fund usage, though, there did not seem to be much that businesses could do to avoid these time limits.

Now that Congress has passed the PPP Flexibility Act, however, businesses that take out PPP loans are under much more lenient time limits – the Flexibility Act increasing the limits from eight weeks all the way up to 24. Yes, from the time that you obtain your PPP loan, you are now looking at a full six months to spend the funds. This affords business owners a much greater degree of freedom in using and working through the PPP loans. Although that change was probably the most consequential for the majority business owners, it was not the only change included in the Flexibility Act.

On top of raising the time limits on fund usage, the Flexibility Act also loosened restrictions on payroll spending, dropping the mandatory spending level from 75% to 60%. For any business owner who is eager to invest their PPP loan funds in other areas, this change fundamentally shifts the nature of PPP loans. The forgivable loans could now become a boom for businesses that are struggling to pick up their momentum as uncertainty around the coronavirus pandemic still looms. Even more striking about this change specifically is that it does not require business owners to restore their workforce fully to quality for it.

Other businesses are already taking advantage of the PPP, diverting their funds toward growth and employee security. The Flexibility Act has become apparent, as well, its changes appearing on new forgiveness applications that the Small Business Administration has distributed. One other note: The Flexibility Act includes a provision that allows you to put off your payroll taxes, and a PPP loan does not exclude you from that provision.

If all of this sounds somewhat complex, I can help you through it. I understand that during these trying times, you need to stay ahead of every opportunity that comes along. The PPP is innovative and exciting, opening the door to growth for small businesses when they need it most.

Your accounting needs are important to us and we want to guide you through this however we can. To learn more about the Flexibility Act and PPP forgiveness, reach out to us today.

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