In response to concerns over the strict PPP forgiveness rules, Congress approved the PPP Flexibility Act in early June. This new law relaxes the requirements for PPP loan forgiveness in favor of small businesses. This article is updated with those changes.
Small businesses needing financial assistance due to the coronavirus can apply for a Paycheck Protection Program (PPP) loan. PPP loans provide cash to cover payroll, rent, utilities, and mortgage interest. To apply for a PPP loan, contact your local banker. To find a lender in your area that is authorized to issue PPP loans, click here. The PPP application form can be downloaded here.
If you are thinking of applying for a PPP loan and haven’t yet, the deadline to apply is June 30, 2020. No additional applications will be accepted after June 30th.
If your business receives a loan from the Paycheck Protection Program, you can apply to have some of all your loan forgiven (which means you don’t have to pay it back) if you spend the money on certain expenses within 24 weeks of receiving the loan.
There is a simplified application [Form 3508EZ] available for employers who have not reduced their number of employees or their employees’ wages by more than 25%.
To be eligible for loan forgiveness, you must spend at least 60% of the loan on payroll for employees (salary/wages, health insurance, retirement, paid leave, and state unemployment taxes) and no more than 40% of the loan on rent, utilities (including phone and internet bills), and mortgage interest.
Any amount of your PPP loan that is not forgiven will be converted to a traditional loan with a 1% interest rate. If your PPP loan was approved prior to June 5, 2020, your loan term is 2 years, but you can negotiate with your bank for a longer term. If your PPP loan was approved after June 5, 2020, your loan term is automatically 5 years.
The amount of your PPP loan forgiveness can be reduced if you have fewer employees or lower employee salaries after receiving your loan than you did before the pandemic. If you hire furloughed employees back or restore their pre-coronavirus salaries by December 31, 2020, your forgiveness will not be penalized.
You won’t be penalized for reducing your employees if you have made a good faith written offer to rehire a laid-off employee who refuses to return to work. If you try to re-hire a furloughed employee and they refuse to come back to work, this will not count against you as long as you document your rehire offer in writing (email is fine) and document the employee’s response so you can prove that you tried to rehire them but they refused your offer.
Employees who were fired for cause, voluntarily resigned, or who voluntarily requested a reduction in their hours don’t count against you for loan forgiveness. Again, make sure to make to document these decisions in writing (email is fine). And if you can document that you are unable to re-hire employees who were on your payroll as of February 15, 2020 and you can’t hire similarly-qualified individuals to fill their positions by December 31, 2020, you can still get full loan forgiveness.
Also, if you can’t go back to your pre-pandemic staffing levels because your business is complying with worker or customer social distancing measures, your loan forgiveness will not be penalized.