New PPP Loan Regulations
Congratulations if you received a PPP Loan! The process was complicated to say the least, but you now have the funds to pay your employees, and maybe some extra bills.
What you need to track
The SBA requires that businesses track all payments made with PPP and EIDL loan proceeds and keep receipts of payments for at least 3 years, but preferably 7 years. Create the following General Ledger accounts to segregate all loan funds and expenditures in your accounting system:
Payment Protection Program Loan
SBA Economic Injury Disaster Loan
SBA Economic Injury Disaster Loan Advance
PPP Loan Forgiveness (for when they approve your PPP loan forgiveness)
PPP Rent or Mortgage Interest
PPP Utility Payments
PPP Loan Interest Expense (if you have to repay any part of the PPP loan)
SBA EIDL Wages
SBA EIDL Rent Payments
SBA EIDL Utility Payments
SBA EIDL Other Payments
SBA EIDL Interest Expense
PPP Loan Forgiveness
The CARES Act provided strict guidelines for PPP loan forgiveness. Companies could use the loan proceeds to cover payroll costs and most mortgage interest or rent, and utility costs over the 8 week period after the loan was made. The 8 week period started on the day a company received the PPP funds in their bank account. This time period has been expanded by the new legislature.
Companies were also required to maintain or restore employee and compensation levels as of February 15, 2020, and had to use 75% of the PPP loan proceeds for payroll. The new payroll requirement has been dropped to 60% to account for the decreased demand for products and services and employers not being able to hire to the same level as of February 15th.
Other provisions for PPP Loan Forgiveness were also updated, and the forms for requesting loan forgiveness were published. Click here to access the forms.
Following is a summary of the new legislation’s main points compiled by the AICPA:
Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75% but was now a cliff, meaning that borrowers had to spend at least 60% on payroll or none of the loan will be forgiven. On June 8th, the SBA and Treasury Department clarified that the 60% threshold is not a cliff and that partial forgiveness is available under 60% of payroll.
Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
Contact your accountant and your bank for assistance with the new PPP loan provisions and completing your loan forgiveness application.
You can also contact us at email@example.com if you need assistance in navigating the process.