Before we look at the recent updates to the Paycheck Protection Program, we should first look back.
On March 27, 2020, the President signed the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) into law, and with it came a flood of relief to the American people and American businesses.
Relief specific to small businesses included:
- The Paycheck Protection Program (PPP)
- Emergency Economic Injury Disaster Loan Advances (EIDL Advance)
- SBA Debt Relief
- Delays in payment of employer payroll taxes stand out as the most impactful
CARES Act by the Numbers
As a CPA, I like numbers, so let’s look at the numbers.
- Economic Injury Disaster Loan Advance
- 707,613 loans totaling approximately $56 billion
- Open to US agricultural businesses only
- Paycheck Protection Program
- Initially funded on March 27, 2020 for $349 billion
- Ran out of funds by April 16, 2020 with 1,661,367 business receiving funding
- On April 27, 2020, an additional $310 billion in funding was added
- To date 4,511,501 small business loans have been approved totaling nearly $511 billion
- Average loan size is $113,228
The Evolution of The PPP Loan
The PPP loan could be the lifeline that saves small businesses in the US. But, from launch to the most recent update, applying the provisions of the PPP has been anything but simple.
On April 2, 2020, just six days after the launch of the program, the SBA posted its initial interim final rules providing businesses and lending institutions with further guidance on the program. Since then, there have been no less than 11 additional interim final rules posted by the SBA.
Then, on June 5, 2020, the President signed into law the Paycheck Protection Program Flexibility Act of 2020 amending certain provisions of the PPP within the CARES Act.
It’s a wonder that we can keep up with the updates and changes. But, you’re in luck. We are here to help consolidate and simplify these rules so that you know what will impact your business and what to do about it.
What to Know About Updates to the Paycheck Protection Program
There are a few important details to know about the updates to the Paycheck Protection Program.
1. There are still funds available.
The good news is — there is still an opportunity to apply for a PPP loan.
If your business has been negatively impacted by the COVID-19 pandemic and you haven’t already applied for a PPP loan, APPLY NOW. And, YES, if you are a sole proprietor without employees, you are eligible, so apply now.
2. You can still have your loan forgiven — if you follow requirements.
The calculation of the loan amount is 2.5 times your average payroll costs or, if you are self-employed, it is 2.5 times your average monthly net profit from your business on your Schedule C for 2019.
The amount of your loan that may be forgiven is based upon the sum of the following costs you have incurred and payments you’ve made during the 24-week period following the date of your loan or by December 31, 2020, whichever date comes first:
- Payroll costs. The same payroll costs that were used to calculate your loan amount. You will remember, these include employees’ salaries, wages, commissions, similar compensation, cash or other tips, vacation pay, group health care benefits, any retirement benefits, etc.
- Interest Payments. Interest on mortgage loan obligations that were in place prior to February 15, 2020. What types of mortgages are we talking about here? Real estate mortgages count. Equipment and business auto loans count too. Any loan that is collateralized by real or personal property.
- Rent Payments. Payments made on lease obligations for any lease agreement that was in place prior to February 15, 2020.
- Utility Payments. Payments for electricity, water, gas, telephone services, or internet services that were started before February 15, 2020.
To make sure your loan is forgiven, check out our recent post on how to ensure that your Paycheck Protection Loan is forgiven.
3. The requirement for payroll cost is lower.
Prior to the enactment of the Paycheck Protection Program Flexibility Act of 2020, a small business needed to use at least 75% of the proceeds from the loan on payroll costs, that has now been reduced to 60%. Now up to 40% of the loan may be used to cover interest on mortgage loans, rent payments and utility payments.
4. The start date for requirements is more flexible.
There is now some flexibility in the start date used to calculate your payroll costs. If your payroll cycle is bi-weekly or more frequent you get to use an alternate payroll coverage period, you can now choose to have your payroll costs time clock start on the first day of the first payroll after you’ve received your loan.
For nonpayroll related costs you can include the cost if it was:
- Paid during the 24-week period covered by your loan or,
- Incurred during the 24-week period covered by your loan and paid on or before the next billing cycle.
We calculate full-time equivalent employees (FTE) using a 40-hour work week. Each employee will only be counted as 1 FTE or less. If an employee works more than 40 hours in a week they will counted as 1 FTE. Similarly, an employee that works an average of 20 hours per week will count as 0.50 FTE.
Get Help With PPP Applications and Updates
These are just the highlights of the most recent developments in the PPP loan and most likely won’t be the last.
To say the PPP is complicated and an ever-moving target is an understatement. Work with your bank and CPA to make sure that you have the most up to date information and are able to get the most for your business.
If you need help navigating the approval process and following PPP updates, CFO2U is here to help.
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