On March 25, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. A summary of the provisions of the law can be found here.
Updates to the CARES Act in Summer 2020
On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 {Flexibility Act) was signed into law. This resulted in several changes to the PPP program. Other provisions of the CARES Act, such as the Economic Injury Disaster Loan (EIDL) and Small Business Administration (SBA) forgiveness on pre-CARES Act loans, appear to be unchanged.
Changes to the Payroll Protection Program (PPP) Under the Flexibility Act:
- The original law allowed loan forgiveness for amounts used by employers to provide cash flow and to retain and/or restore employee wages and levels to pre-pandemic amounts based on 8 weeks of payroll. The new law provides businesses that have already received a PPP loan the option to extend this period to 24 weeks, but to no later than December 31, 2020 (previously June 30, 2020). New loans will have 24 weeks but no later than December 31, 2020.
- The amount spent on payroll in the old law had to be 75% to ensure full forgiveness with partial forgiveness available if the 75% amount was not met. The new bill reduces this to 60% for full forgiveness. Partial forgiveness will still be available if the 60% threshold is not met according to SBA and Treasury Department interpretations of the law.
- Provision is made for adjustments to employee levels if qualified employees cannot be found.
- The term was 2 years for loans made under the old law and before June 5, 2020. These loans can be extended to a term of 5 years if the borrower and the lender agree to do so. Loans made after June 5, 2020 will have a 5-year term.
- The deferral period for borrower payments was 6 months under the old law. The new law extends the deferral to the date the SBA pays the lender for the loan forgiveness or 10 months if the borrower does not qualify for forgiveness or chooses not to take advantage of it.
- Businesses with PPP loans can delay paying payroll taxes. You should consult your payroll professional for guidance on how this may affect your business.
- The interest rate of 1% on these loans remains unchanged.
Other PPP Items
The SBA is currently accepting PPP loan applications until August 8, 2020. A business seeking a PPP loan must still apply through a financial institution that is authorized to make these loans. The application is not made directly through the SBA.
The PPP portion of the CARES Act is relatively easy to apply for, but the provisions and rules are quite complex. Please consult you lending institution and/or financial advisor for further details
Economic Injury Disaster Loan (EIDL)
The Flexibility Act did not affect the EIDL. However, the SBA has indicated that, while it is still taking applications for this program, the provision for making advances upon application for the loan will no longer be made.
Consult with CPA
For small businesses finance management, consult with a CPA and tax professional for your day-to-day finances. Contact John Reddall CPA for more information.