Paycheck Protection Program Flexibility Act
We are summarizing below the Small Business Administration (SBA) clarification of the major provisions of the Paycheck Protection Program Flexibility Act (PPPFA).
- Borrowers with loans prior to June 5, 2020 can choose an 8 week OR 24 week covered period.
- Loans originated after June 5, 2020 automatically will use the 24 week period.
- Borrowers are required to spend at least 60% of PPP funds on payroll costs.
- Payroll costs have been clarified to include up to $100,000 of annualized pay per employee (for 24 weeks, a maximum of $46,154 per individual, or for eight weeks, a maximum of $15,385 per individual), as well as covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state unemployment insurance premiums.
- Owner compensation replacement for Sole Proprietors is limited to 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for the 24-week covered period.
- For sole-proprietors with no employees, this new limit will essentially allow for 100% forgiveness of the loan in every case.
It is important to note this guidance does NOT discuss the impact on Corporate or Partnership “Owner- Employees.” Until the SBA issues further clarification, a likely option could be the SBA limiting owner-employees to 2.5/12 of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf, with a cap at $20,833 across all businesses.
The full regulations are scheduled to be posted on June 19 at the following link: https://www.federalregister.gov/documents/2020/06/19/2020-13293/business-loan-program-paycheck-protection-program-temporary-changes
Download the latest version of the forgiveness application at the following link. We expect additional changes to be made to the application: https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf