New PPP Loan Forgiveness Rules: 6 Things To Know

Great news for business owners that received a PPP Loan under the Paycheck Protection Program and are seeking to have that loan forgiven. 

Earlier this month, the federal government enacted the Paycheck Protection Flexibility Act, which makes it easier for small-business owners to qualify for loan forgiveness.

The PPP loans are a part of the Coronavirus Aid, Relief, and Economic Security Act (CARES), and are meant to help business owners cover payroll costs, rent, and utilities. The CARES Act also provided a path to full forgiveness of the PPP loans under certain conditions.

The House introduced the Paycheck Protection Flexibility Act after receiving feedback from business owners who complained about spending requirements forcing businesses to use 75% of the loan on payroll. The Senate later passed it and the president signed it into law in early June 2020.

So here are six ways the law attempts to make using PPP loans easier:  

1. You now have 24 weeks to spend your funds, up from eight weeks.
2. You need to spend 60% of the loan on payroll, down from 75%.
3. The covered period of the loan now ends Dec. 31 instead of June 30.
4. You won’t have to make employer payroll tax payments through the end of 2020. 
5. Your business remains eligible for loan forgiveness if you can show that some employees declined to return to their jobs.
6. The payback period for new loan applicants has been extended from two years to a minimum of five years for those not seeking forgiveness or those who are ineligible for forgiveness.

Why Now?

In early June, most businesses that have received PPP funds were nearing the end of their eight-week loan forgiveness period, and were worried they would not qualify for forgiveness. 

Under the CARES Act, a business only qualified for forgiveness if they maintained pre-pandemic staffing levels. However, many businesses found it challenging to rehire employees who didn’t want to return to work due to fears of falling ill or because their unemployment benefits were more than their work wages. In many other cases, a sharp drop in business revenue made it unnecessary or unreasonable for some businesses to fully re-staff within the previous eight-week window.  

Chalk this one up to Congress attempting to fix some of the unintended negative consequences of the original Paycheck Protection Program. These are basic, commonsense changes that endeavor to fix the unintentional problems created in the CARES Act. (For proof: the Senate passed the Flexibility Act unanimously!)

As with most things related to the COVID-19, information changes frequently. If you received a PPP loan, check with your financial institution to verify their process for applying to have the loan forgiven. 

So there you go! You now have more flexible standards for loan forgiveness eligibility. Thank you for the support!

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Scott Rattigan is an attorney, co-founder of a thriving functional medicine membership practice, and the founder of Functional Lawyer. He is an award-winning writer and speaker who is dedicated to helping functional and integrative medicine doctors succeed in the practice that they have in their visions.