New Law Expands Paycheck Protection from 8 to 24 Weeks, Removes 75% Rule
A new law, enacted on June 5, 2020, expands the loan-forgiveness period in the Paycheck Protection Program, increasing the covered period from eight to 24 weeks and lowers the allowable percentage of funds directed to payroll from 75 percent to 60 percent. For many remodelers and home improvement professionals, this relaxing of PPP rules virtually guarantees 100 percent forgiveness of previously obtained loan amounts.
What follows is an analysis by attorney D.S. Berenson, managing partner of Berenson LLP.
Details of the New Law
New Covered Period Option The Covered Period was the 8-week period that started on the date you first received the PPP funds. Existing PPP borrowers can now choose to use a 24-week period instead. For new PPP borrowers, who have not yet received funds, you will use the 24-week period, so long as it does not extend past December 31, 2020. Of course, any funds that are not used during your Covered Period (or are used for something other than Covered Costs) are still going to have to be repaid.
New Payroll Costs Well, the Payroll Costs themselves have not changed, but recall that there are two areas that you can spend the loan on – at least 75% of the loan had to have been used for Payroll Costs, and no more than 25% could be used for Non-Payroll Costs. The 75% has been changed to 60%. Now only 60% of the loan proceeds have to be used for Payroll Costs to be eligible for loan forgiveness. That, in turn, means up to 40% can be used for Non-Payroll Costs.
New Term of the PPP Loan The 2-year term on the loan has now been extended to 5 years. However, you will most likely need to complete an actual loan amendment with your lender to make sure this is taken care of. We suggest giving your lender a few days, and then touching base to see if they have prepared a simple loan amendment form for this.
New Staffing Safe Harbors As we know, loan forgiveness is also tied to bringing your full-time staffing back up to the same level it was at before the impact of Covid-19 – and you need to do this by the end of your Covered Period. In a prior Alert, however, we noted that your loan forgiveness is not going to be reduced if you offered in writing to re-employ a worker in good faith at the same job and pay and they refused, or for any workers who voluntarily resigned, were fired for cause, or requested a reduction in hours worked.
Two additional staffing safe harbors have now been added: First, your loan forgiveness will not be impacted if your inability to restore your staffing operation to required levels is being prevented due to Covid-19 restrictions. In other words, if your state still has shut-down restrictions in play or is under a phased reopening, and you are still having problems bringing workers back on staff since you can’t yet bring your business up to speed, that will not affect your loan forgiveness calculation. Second, if you are unable to find qualified employees to fill your positions, that will not affect your loan forgiveness calculation either.
New Payroll Tax Deferral. Borrowers under the PPP are now allowed to defer their employer-portion of payroll taxes until December 31, 2020. We discussed this process in a prior Alert, and expect the mechanism will now be the same, but opened up for all PPP borrowers.
All of these changes are good news for PPP borrowers in the remodeling and home improvement industry, of course, but there remains a lack of clarity on exactly how these changes will filter down into actual practice and how they will impact the corresponding PPP loan forgiveness requirements. We will continue to keep you informed as we obtain additional guidance on these topics.
For more information, feel free to contact Berenson LLP at (703) 759-1055.