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PPP Loan Forgiveness Over and Above Sigh of Relief

Quick Excerpts of PPP Loan: :

On April 3, U.S. Congress launched the Paycheck Protection Program (PPP Loan) with $349 billion in funding for providing relief to small businesses during the coronavirus pandemic.

The small businesses including tax-exempt not-for-profits organizations, veteran organization, Tribal Concerns, self-employed individuals, sole proprietorships and independent contractors who were in operation on Feb. 15 with 500 or fewer employees are eligible to avail PPP loan. However, there are some exceptions to PPP loan.

To an extension to the Paycheck Protection Program, the U.S. Senate extended some more reliefs by allowing relaxation to small businesses and PPP loan recipients for qualifying for PPP loan forgiveness.

U.S. Congress has been commended by AICPA (The American Institute of CPAs) for acting as per need of an hour and allowing flexibility in using PPP funds.

The AICPA has compiled some points and has urged small businesses to avail benefit of PPP loan forgiveness before its deadline of June 30.

The House has passed Paycheck Protection Program Flexibility Act of 2020.

Let have a look at legislation’s main points:

  • Extension in Forgiveness Period for Expenses:
    Earlier the PPP borrowers were entitled to get benefit of PPP Loan for the eight-week period which is now extended to 24 weeks. PPP borrowers can choose to avail this benefit. Further, 24 week covered period can extend only till Dec 31, 2020.
  • Change in Threshold:
    The second change in Loan Forgiveness is drop in payroll expenditure requirement from 75% to 60%. From now onwards, borrowers need to spend at least 60% on payroll or none of the loan will be forgiven.
  • Extension in Timeframe for Restoring Workforce:
    Further, deadline has been changed from June 30 to Dec.31. Now onwards, borrowers can utilize the 24-week period to restore their workforce levels and wages for loan forgiveness till Dec. 31.
  • Exceptions to Restoring Workforce:
    Borrowers are eligible to avail PPP loan forgiveness even if they don’t fully restore their workforce. The employees who were refused earlier, can be rehired at the same hours and wages as before COVID-19 crisis.
  • Relaxation in Repayment Period:
    Current PPP loan borrowers have been provided relaxation for repaying the loan from earlier period of two years to five years, if both borrower and lender agree. However, the interest rate remains unchanged at 1%.
  • Increase in Current Limit on Non-payroll Expenses:
    The earlier limit on Non-payroll expenses (such as rent, utility payments and mortgage interest) for qualifying for loan forgiveness has been increased from 25% to 40%.
  • Access to Payroll tax Deferment:
    It gives full access to payroll tax deferment for those businesses that qualify for PPP loans.
  • Higher business values:
    The link between profits and business value means that the moment a corporation creates a new sustainable level of profit, the business value is adjusted accordingly.
  • Lower staff turnover:
    This, combined with the culture that must exist for innovation and creativity to flourish, means that new employees will be attracted to the organization.

Note: There is no change in deadline. The deadline for applying for PPP loan will remain June 30.

Lastly, in opinion of AICPA, Paycheck Protection Program Flexibility Act has provided numerous reasons for applying for this financial relief. It will be easier for small businesses to apply for PPP funds with these improved rules.

By John Bugh

John Bugh is Chief Revenue Officer for Pacific Accounting and Business Services (PABS), responsible for the strategic direction, planning, vision, growth, and performance of the company’s marketing, branding, and revenue streams.

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