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Payroll Protection Program Forgiveness – What You Need to Know

Category: Business Tips

The COVID 19 pandemic left many small businesses struggling to stay afloat in 2020. In an effort to reduce the economic impact of the resulting business restrictions, Congress passed the CARES Act in March of 2020. An important part of the package is the Payroll Protection Program, also known as the PPP. The purpose of the PPP was to help employers keep their staff on payroll and reduce the amount of the US workforce collecting unemployment. The intention was to provide funding to help businesses survive until life returned to normal. 

The initial key provisions of the PPP are as follows:

  • Eligibility – small businesses, eligible nonprofit organizations, self-employed individuals, independent contractors, veterans organizations, and tribal businesses. 
  • Size – less than 500 employees or qualifies as “small business concern” under SBA criteria.
  •  Loan Amount – either 2.5 times the average month’s payroll as defined or $10 million. 
  • Use of Funds– payroll costs and other costs including mortgage interest, rent, personal property leases, utilities, and interest on other debt.
  • Loan Terms – 1% fixed rate. 
  • Loan Forgiveness – eligible payroll and other costs as listed above excluding interest on other debt.

In addition to providing a lifeline for many small businesses and non-profit organizations, this funding was accompanied by the ability to have most or all of it forgiven. However, the original PPP Act wasn’t without its flaws. It lacked clarity and transparency. As the “new normal” set in, some businesses struggled to cover expenses and meet the forgiveness eligibility requirements.

PPP guidelines

 The Payroll Protection Program Flexibility Act is Passed

One of the biggest hurdles many businesses and organizations face is compliance with the required percentage that could only be spent on payroll in order to review loan forgiveness. On June 5, 2020, the Payroll Protection Program Flexibility Act was passed. It was meant to help address that and some of the other key issues faced by those who received PPP funding and are now trying to meet the Forgiveness requirements.

The key issues addressed by the PPP Flexibility Act are as follows:

  • Reduction of Payroll Percentage – The amount of funding required to be used for payroll was decreased from 75% to 60%. 
  • Covered Period for Maximum Loan Forgiveness of Permissible Expenses – This was increased from 8 weeks after funding to earlier of 24 weeks after loan origination or December 31, 2020. Those who received funds from the Payroll Protection Program prior to the introduction of the Flexibility Act may use either covered period. 
  • Deadline for Loan Forgiveness Application – Not defined in the original PPP. Act., the Flexibility Act established a deadline of within 10 months after the last day of the covered period. 
  • Forgiveness Reduction Safe-harbor Deadline –  This applies to businesses that received funding but, due to Federal and State health and safety regulations, were unable to return to the same level of business activity they had prior to February 15, 2020. The deadline has been extended from June 30, 2020, to December 31, 2020. 
  • Time Period to Rehire or Replace Workforce – The timeframe to accomplish this and adjust for salary and wage reductions has been extended to December 31, 2020. 
  • Loan Maturity – Increased from 2 years to 5 years. 
  • Loan Payment Deferral Period – Extended from 6 months to the date the lender receives the forgiveness approval from the SBA. 
  • Payroll Tax Deferral – Loan forgiveness recipients may now use this.

small business loan forgiveness

Beyond the Payroll Protection Program

At CapFlow Funding Group, we see so many of our clients trying to navigate the complexities of the PPP Act and its seemingly constant evolution. In an effort to assist them and other business owners, we continue to update our resource center with the latest information and forms relating to the PPP Act. 

While the pandemic has drastically altered the economic landscape, we will do our best to help our clients not only survive but successfully rebound in the” new normal”. Contact us to see how we might be able to help.


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