On May 27, 2020, the House passed the Paycheck Protection Program Flexibility Act by 417-1, which attempts to ease restrictions on small businesses as they seek loan forgiveness under the Paycheck Protection Program authorized by the CARES Act.
The House bill comes on the heels of new Treasury Department “Interim Final Rules” on PPP loans issued late on May 22, right before Memorial Day weekend. These new regulations provided more complicated and harsher requirements for small business owners to apply for and receive PPP loan forgiveness.
Starting with the good news, the House bill addresses many of the concerns expressed by small business since the passing of the CARES Act, which created the PPP. First and foremost, it reduces the amount of the loan needed to be spent on payroll from 75% to 60%, thus increasing the amount of funds available for other expenses from 25% to 40%. These expenses still include rent, mortgage payments, utilities, and interest on loans. This change is less than the 50-50 level most small business advocates were seeking, but it is still an improvement.
The plan outlined in the bill would also offer the following:
- Extend the window businesses have to use the funds from eight weeks to 24 weeks
- Push back a June 30 deadline to rehire workers to December 31, 2020
- Provide more leeway on loan forgiveness for business owners who show they could not rehire workers or reopen due to safety standards
- Extend the time recipients have to repay the loan
- Let companies that get loan forgiveness defer payroll taxes
These changes address the “original sin” of the PPP loans: namely, putting small business owners in the position of the unemployment office and forcing them to do so during the government-mandated shutdown, when revenue was close to zero but expenses like rent continued unabated.
On the Senate side, Minority Leader Charles E. Schumer (D-NY) endorsed the House bill and wants to push it forward. Senator Marco Rubio (R-FL), Chairman of the Senate Small Business and Entrepreneurship Committee, is supporting a different bill, however, but there are enough similarities to give hope for a compromise bill. Specifically, Rubio’s approach would only extend the rehiring deadline to 16 weeks instead of 24. He also opposes the House bill’s easing on forgiveness without rehiring workers.
Treasury Guidelines Crack Down on Forgiveness
While there is optimism in Washington that this new bill will reach President Trump’s desk for signature, there is no guarantee of when or if this may happen. And, until that occurs, the new and harsher Treasury regulations issued on May 22 will dictate how the PPP loan forgiveness process works.
The biggest problem with the new regulations is that you will likely need a lawyer, accountant, and advanced degree in mathematics to figure out how to calculate the forgivable portion of the loan. The government once again did not realize the administrative burden these rules place on business owners at a time when they’re trying to figure out how to survive the coronavirus shutdown and cautious reopening of our economy.
Published at Sat, 30 May 2020 19:46:21 +0000