The CARES Act was signed into law on March 27th, 2020 by President Trump, which established the Paycheck Protection Program (PPP). One of the key components of this loan program was that the loan would be forgiven for qualified borrowers.
Since the program was signed into law, there have been frequent and substantial modifications to the guidance offered by the United States government and the associated entities overseeing he program.
The most recent modification to the PPP program was through the Flexibility Act signed into law by President Trump on June 5th, 2020. The Flexibility Act offered just that, flexibility, to covered borrowers in the midst of COVID-19.
Some of the most important changes for borrowers to be aware of include:
1. An extension of the 8-week period to use loan proceeds to 24 weeks, although not to extend beyond December 31st, 2020.
2. An extension of the deadline to cure full-time employee and wage reductions from June 30th, 2020 to December 31st, 2020.
3. Lowering the percentage amount of loan proceeds to be used on payroll costs from 75% to 60%, and an associated increase in the amount forgiven for use on non-payroll costs (rent, utilities, etc.)
4. Established a date to apply for forgiveness as 10 months following the sooner to occur of: (a) the end of the use of the Borrower’s period to use PPP funds (the 8- or 24-week period) or (b) December 31, 2020.
Applying for Loan Forgiveness
For those that borrowed under the PPP, the total amount of potential forgiveness is capped at the original principal balance plus any accrued interest. Expenses that are eligible to be forgiven include:
2. Business mortgage interest payments (on mortgage obligations arising before February 15th, 2020)
3. Business lease and rental payments (on leases arising before February 15th, 2020)
4. Business utility payments (on services arising before February 15th, 2020)
It is important to note, that based on the Flexibility Act, only 40% of the total PPP loan amount can be used on 2, 3, and 4 above, collectively.
On June 16th, 2020, the Small Business Administration issued the below documents to apply for loan forgiveness under the CARES Act and Flexibility Act.
1. A PPP Loan Forgiveness Application, located HERE
2. A PPP Loan Forgiveness Application Instructional Guide, located HERE
3. The NEW PPP Loan Forgiveness Application EZ, located HERE
4. The NEW PPP Loan Forgiveness Application EZ Instructional Guide, located HERE
In order to qualify for the simpler and more streamlined EZ application, the borrower must fail within one of these three categories:
1. The borrower is a self-employed individual, independent contractor, or sole proprietor who both had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll on the PPP loan application; or
2. The borrower neither reduced salary or wages of employees making less than $100,000.00 per year by more than 25% nor reduced the number of FTE employees (unless exempted due to inability to rehire employees or restore employee hourly count); or
3. The borrower did not reduce salary or wages of employees making less than $100,000.00 per year by more than 25% and was unable to operate at the same level of business activity prior to February 15, 2020, due to compliance with federal guidance on sanitation, social distancing, or other COVID-related safety requirements.
Borrowers should prepare and keep records of the following for a minimum of six (6) years per the guidance issued by the government:
1. Payroll costs verification (bank account statements, IRS payroll filings, state wage and unemployment filings, etc.)
2. Pre-PPP loan full-time equivalent (FTE) employee count verification (IRS pay-roll tax filings and state wage and unemployment filings)
3. Non-payroll costs verifications (documents that verify existence of obligations prior to February 15th, 2020 and all amounts expended during the covered period.
The loan forgiveness applications are very detailed, and all borrowers should review them in great detail. The Warren Law Firm stands ready to assist with the application process and any questions that may arise. Contact us today to set up a business consultation to discuss how we can assist during this critical time.
The Warren Law Firm expects additional guidance from the United States government as the response to COVID-19 remains ongoing.
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