Act allowing more flexibility in PPP loans passes congress

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The Paycheck Protection Flexibility Act is on its way to the president for signing after passing the senate late last night, reducing restrictions on how funds from PPP loans can be spent while protecting eligibility for forgiveness.

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Businesses will now have more time to use their PPP funds. The flexibility act increases the time from eight weeks to 24 weeks, changing the ending date to December 31, 2020. Businesses will also be allowed to use up to 40% (up from 25%) of the funds for non-payroll costs, allowing them to put more of the loan towards rent, utilities and other overhead expenses.

The act establishes a five-year maturity date for the loans and adds exemptions based on employee availability. Some businesses have reported employees hesitant to return to work when called back, making it difficult for employers to comply with the loan requiring they hire back by the end of the initial eight weeks. The extension to 24 weeks will hopefully  alleviate this problem.

The deferral period has been extended as well. Loan recipients must apply for forgiveness within 10 months after the last day of the covered period (December 31, 2020) or risk having to pay the money back.

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Previously under the CARES Act, companies were allowed to defer paying certain employer payroll taxes, if desired, up until forgiveness of their PPP loan.  Now, the deferment of paying these taxes until forgiveness of the PPP loan has been removed and can be deferred through December 31, 2020.  Half of the deferred taxes will be due on December 31, 2021 and the other half on December 31, 2022.

The Paycheck Protection Flexibility Act comes as a response to concerns from business that the original PPP loan rules were too restrictive and weren’t allowing them to use the money in ways that would help them keep their businesses open.

A few weeks ago, the Small Business Administration released rules and guidance for forgiveness. While the general guidelines will likely remain the same, we’re expecting an update soon.

For more information and resources on COVID-19, including the flexibility of PPP loans, see our coronavirus page. Please reach out to your Henry & Horne professional for further insight on how these aspects of the application process affect your business’ situation.

Beth Hawley