PPP Loan Update-H.R. 7010
The Senate unanimously approved H.R. 7010 and the bill is expected to be signed by the President today.
We wanted to give our clients a comprehensive summary of the new legislation and the rules going forward.
Here are the highlights:
Covered Period
- Increased to 24 weeks (or to 12/31/2020, whichever comes earlier). It should be noted that the eight week period is still an option given at the election of the borrower.
Non-Payroll Costs
- The 25% cap on non-payroll costs has been increased to 40%. This also increases the amount of loan forgiveness related to rent, interest, and utilities.
- The language in H.R. 7010 seems to indicate that the new 60% level of payroll costs is a floor that must be met. If less than 60% of a PPP Loan is spent on payroll costs, NONE of the loan will be forgiven.
- Senators have requested revision by the SBA, but currently, there is a firm floor at 60%.
FTE and Salary Restoration/Forgiveness Adjustments
- The new legislation extended the deadline to restore FTEs and salaries to Feb 15th levels to December 31, 2020 (previously Jun 30th).
- Additionally, businesses that remain fully or partially closed through December 31st and are unable to restore their FTE count to Feb 15th levels are provided some relief in the loan forgiveness adjustment (additional details to follow).
Loan Terms
- Modifications have been made to the terms of the PPP loans including:
- Terms of the loans have been extended to five years.
- Allows for the deferral of interest and principal payments on the loans until the date the lender receives forgiveness from the SBA (previously six months from the loan date).
- These modified terms are technically only available to loans signed AFTER H.R. 7010 is signed into law, but lenders and borrowers are free to negotiate the terms on existing loans to match the new terms provided above. This would warrant contacting your banker or banking institution.
Deferral of Employer Payroll Taxes
- In addition to creating the PPP Loan program, the CARES Act provides employers with the ability to defer the employer’s 6.2% Social Security tax burden for 2020 until the end of 2021 (50%) and 2022 (50%). The original terms of the CARES Act did not allow this for businesses that received a PPP Loan.
- H.R. 7010 now extends this to all businesses. A borrower of a PPP loan may now also defer all of its 2020 Social Security tax burden into 2021 and 2022, even if the PPP loan is forgiven before December 31, 2020.
There are still numerous unanswered questions around the Paycheck Protection Program as it relates to the forgiveness process/application. With the passage of H.R. 7010, it is expected that the long-anticipated FAQs rumored to be forthcoming from the SBA will be released. Also, the recently published forgiveness application will need to be modified to be in line with the modifications included in H.R. 7010.
We will continue to bring additional guidance as it becomes available. For updated resources and information, visit our resource center at https://www.cca-advisors.com/2020/ccas-resource-center/
Please contact your advisor or a member of our team, if you have any questions regarding your PPP loans and the impacts of this legislation.
