As COVID-19 began to impact businesses, the federal government resolved to help by creating the Paycheck Protection Program (PPP), which offers loans to help small businesses with fewer than 500 employees stay afloat and keep workers employed—but also has caused a fair amount of confusion.
In response to concerns about the inflexibility of the PPP, Congress recently passed amendments to the program that allow employers to better take advantage of the program. The amendments, which the President signed into law on June 5, address a variety of issues regarding how the funds should be spent, when the funds should be spent, and how to handle re-staffing problems during the pandemic.
Forgivable Costs Under the PPP
The key aspect of the PPP is that the loans provided can be fully forgiven without repayment if the employer meets certain conditions. One condition is that the funds are expended only on certain costs. To be forgivable, the funds must be expended on:
• Payroll costs;
• Mortgage interest payments;
• Business rent or lease payments; and
• Electricity, gas, water, transportation, telephone and internet access.
The original terms of the PPP required employers to spend at least 75% of their PPP funds on payroll costs. For some employers, this is a difficult threshold to meet due to operational needs and the circumstances of the pandemic.
In the amendments, employers now must use at least 60% of the PPP loan for eligible payroll expenses, instead of the original 75%.
Timeframe to Expend PPP Funds Extended
Another condition employers must meet to qualify for forgiveness is that all funds must be expended within a “covered period.”
Originally, employers had eight weeks from the receipt of the PPP funds to spend it all. Because the pandemic has caused employers to remain closed or open more slowly than anticipated, the covered period was too short for many employers.
The PPP amendment now extends the covered period to 24 weeks from the date the loan funds were disbursed to the employer.
For employers who have not yet received funds but are participating, or considering participating, the covered period ends either 24 weeks from the date of receiving the loan funds or December 31, 2020, whichever occurs sooner.
A third condition employers must satisfy for loan forgiveness is that the employer returns to staffing and salary levels it maintained pre-pandemic.
Originally, employers had a safe harbor until June 30, 2020 to return to those levels. Recognizing the slow reopening of many businesses, Congress extended the safe harbor to December 31, 2020.
Ongoing Staffing Issues
The staffing level requirements have created some concern and confusion amongst employers. Under a variety of circumstances outside the employer’s control, the employer may not be able to get back to pre-pandemic staffing levels. The PPP amendments include a couple of new exemptions from the staffing level condition.
Loan forgiveness will not be impacted based on staffing levels if an employer, in good faith, is able to document the following:
• An inability to rehire individuals who were employees on February 15, 2020; and
• An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
Forgiveness also will not be affected based on staffing levels if the employer, in good faith, is able to document an inability to return to the same level of business activity due to compliance with federal workplace requirements or guidance related to sanitation standards, social distancing, or other customer or worker safety requirements related to COVID-19.
Future Rule Changes
Due to the PPP’s scale and rapid deployment, many rules have been added or modified since the program began. Moreover, due to the recent congressional amendments to the PPP, the U.S. Small Business Administration may modify or add new rules in response to the changes.
Employers participating in the PPP should consult regularly with their lender or visit the SBA website to learn about any additional rules or rule changes that may occur.