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PPP – What’s Next?

May 29, 2020 | Category: Asset Protection, Corporate and Taxation, Estate Planning and Probate, News

As a refresher, the Paycheck Protection Program (PPP) was authorized by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), a $2 trillion bill signed into law in March. In April, the PPP and Health Care Enhancement Act (Health Care Act) provided about $310 billion to replenish the PPP. A hallmark of the PPP is that for the loan proceeds to be forgiven they must be spent on “eligible expenses” within the 8-week period following funding of the loan, with at least 75% of the loan proceeds being spent on payroll-related costs. The 8-week period has created much controversy, as many businesses have expressed fear they will not be able to utilize all or a substantial part of the loan, as they have not yet resumed business and, as such, have not yet brought back their employees.

Yesterday the House voted overwhelmingly in favor of a bipartisan bill that would extend the 8-week period in which small businesses can use their PPP loans, as well as allowing them to spend less than 75% of the loan proceeds on payroll.

The House bill, called the Paycheck Protection Program Flexibility Act, makes changes to the PPP that include extending the period for using loans to 24 weeks. It also would let borrowers spend just 60%, rather than 75%, of their loan proceeds on payroll costs and still be eligible for loan forgiveness.

An earlier version of the House bill eliminated the 75% rule. Senate Republicans and Treasury Secretary Mnuchin pushed back on this proposal however, with Mnuchin stating that most of the money received through the program should go to workers. After much opposition, the House bill was changed to have a 60% rule.

Mnuchin and Senate Republicans also expressed support for a push to extend the 8-week period that businesses must spend funds from forgivable loans received through the PPP, likely to 16 weeks. "One of the things we are working with Congress on, and there is bipartisan support, is lengthening the 8-week period," Mnuchin said. "The eight weeks I wish I could do administratively. If I could we'd already do it.

The Paycheck Protection Program Flexibility Act includes the following provisions:

  • Allowing loan forgiveness for expenses beyond the 8-week covered period to 24 weeks and extending the rehiring deadline;
  • Increasing the current limitation on the use of loan proceeds for non-payroll expenses from 25 percent to 40 percent;
  • Extending the PPP from June 30 to December 31;
  • Extending loan terms from two years to five years;
  • Ensuring full access to payroll tax deferment for businesses that take PPP loans.

It is expected that House lawmakers could work out a compromise with the Republican-run Senate on the PPP changes within the next week.

I will continue to monitor updates on the PPP and keep you advised.

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