Important PPP Fixes On The Way

June 4 2020

On June 3, the Senate unanimously passed H.R. 7010, the “Paycheck Protection Flexibility Act” (PPFA) which relaxes the PPP loan forgiveness rules and will be a tremendous help for restaurants and other businesses who have not able to fully reopen and rehire staff. This bill previously passed the House 417-1 and is expected to be quickly signed into law by President Trump.

Here’s what restaurant owners need to know:

  1. You will now have 24 weeks to spend your PPP loan on payroll, rent, utilities, and interest, rather than 8 weeks. As before, the clock starts on the day you received your PPP loan.
  2. You can now spend up to 40% of your PPP loan on qualifying non-payroll costs (rent, utilities, and interest) instead of 25%. However, what appears to be a drafting error in the PPFA provides that if you don’t spend at least 60% of your PPP loan on payroll, NONE of the loan will be forgivable. It’s not clear that Congress intended this result, so clarification is expected, either from the SBA or in future legislation. 
  3. You now have until December 31, 2020 instead of June 30 to rehire your full staff and qualify for loan forgiveness. As before, your “full staff” is based on the total salary/wage level and number of “full-time equivalent employees” on your payroll as of February 15, 2020. Thanks to PPFA, as long as you restore your payroll to this level at any time before December 31, you should qualify for full loan forgiveness (assuming the other requirements are met).
  4. If you are not able to fully reopen by December 31 due to COVID-related mandates, you may still qualify for full loan forgiveness as long as you’ve met the other requirements. This is a big win for restaurants and bars.
  5. You should have more time to repay any loan proceeds that are not forgiven, as the PPFA allows banks to modify PPP loans to extend the repayment term to 5 years (from 2 years, currently)
  6. You can continue to defer the employer share of 2020 social security taxes to 2021 (50%) and 2022 (50%), even if your PPP loan is forgiven.

There are still a number of questions and unknowns

  1. We don’t know how the cap on total compensation per employee will be handled with the change to 24 weeks. Currently, the cap is $15,385 (which is $100,000 annualized into 8 weeks). Presumably, this cap will become $46,153 ($100,000 annualized into 24 weeks), but we won’t know for sure until the SBA issues guidance. We also don’t know how the cap on owner compensation will be handled.
  2. The process for applying for loan forgiveness will definitely change, but we don’t know how. For example, we don’t know whether borrowers will have to wait until the end of the 24 week period to apply for forgiveness, or can apply once the PPP loan funds have been spent and staff level restored. The SBA is expected to issue guidance on this.
  3. Certain details on what expenditures will qualify for loan forgiveness still have not been clarified, although many of these questions are less relevant now that you have 24 weeks to spend your PPP loan.
  4. Questions remain about the tax treatment of PPP loans. About a month ago, the IRS announced that expenses paid with PPP funds which are forgiven are NOT deductible for tax purposes, since the loan forgiveness is tax-free income. There was a push to get this changed in the PPFA, but the final bill did not include this language.

Overall, PPFA is a huge win for restaurants and bars, as these changes will help ensure that more businesses will have their PPP loans fully forgiven, and will have the opportunity to rebuild and continue serving their communities. Thanks to the Texas Restaurant Association for the tireless advocacy to help make these critical changes a reality.