Congress updates PPP loan rules, making them more business friendly

It’s gotten a bit easier for business folks trying to hold on by using a Paycheck Protection Program loan lifeline.

Under new, liberalized rules passed last week, business folks have more time and more freedom to spend the money provided under the PPP.

Now, businesses may spend less money specifically on payroll and still qualify for the program’s major lure — a pledge by government that, if used properly, the loans are forgiven and in effect become outright grants.

These updates reflect an effort by Congress and President Donald Trump to iron out problems with the hastily passed program established to address the economic crisis triggered by the coronavirus.

Trump signed the legislation, known as the Paycheck Protection Flexibility Act, into law on Friday.

“The goal is to help business owners even more,” Steve Bulger, acting regional director for the SBA, said in an interview.

“The changes are really helpful,” said Ryan Pollock, who co-owns three businesses in Philadelphia — RyBread, RyBrew, and Harper’s Ice Cream — located in the Fairmount/Brewerytown area. In total, he and his partners borrowed $100,000 for all three businesses through Kabbage, an online lending platform.

“We were fortunate that we never laid off employees, never closed, we adapted at what was being thrown at us,” Pollock, 36, told me. “This gave us the cash flow we needed, and continue to pay our staff and our rent.”

» READ MORE: Why are Pa. and N.J. receiving fewer PPP coronavirus loans? The New York Fed investigates.

Under the new rules, borrowers now may use the money over a 24-week period, rather than the 8-week period set in the first legislation.

In addition, your loans can be forgiven even if you don’t bring back the same number of employees.

And business owners now must use 60% of the money on payroll, down from 75%.

“That was based on feedback we heard from restaurant owners and the hospitality industry,” where business owners spend more on fixed costs like food and rent, Bulger said.

Accountants cheered the news. “Borrowers now may have a better chance of meeting the 60% requirement with the period extended to 24 weeks,” said tax expert Mitchell Gerstein with accounting firm Isdaner & Co. in Bala Cynwyd.

Business owners also now have more time to bring back workers. The repayment period for the PPP loans is now five years, up from two years.

“The new laws provide borrowers with more time and less obstacles to accomplish 100% forgiveness of the loan, which many businesses desperately need,” wrote Philadelphia accounting firm Drucker & Scaccetti in a note to clients.

The deadline to apply for a PPP loan remains June 30, at least for now.

What if you made offers to your employees to come back ― and they don’t? The new legislation allows for that, according to Marcum LLP’s Michael Maksymiw, a partner in the firm’s Hartford office.

You can still get your loan forgiven, he noted, if you’ve done the following: made a good-faith written offer of employment that is rejected; fired someone for cause; found that you’ve been unable to hire a former employee or similarly qualified one; and can’t restore business operations to Feb. 15 levels because of COVID-19. You also won’t face penalties when employees have voluntarily resigned or asked to work fewer hours.

The law also gives you more time to apply for loan forgiveness. The new deadline is Dec. 31, a pushback of six months.

» FAQ: Your coronavirus questions, answered.

Small business advocates welcomed the changes.

This "eases the requirement that businesses return their payroll to pre-pandemic levels, so long as they have made attempts to rehire staff,” said John Arensmeyer, CEO of Small Business Majority, a nonprofit in Washington.

“This is critical, as low consumer confidence and post-pandemic changes will prevent many businesses from operating at the same level as before,” he said. In particular, he said, reducing the money that must be spent on payroll to 60% gives "more flexibility to businesses with high overhead costs to use the funds on expenses like rent, mortgage, and utilities.”

Pollock said his payroll would not have hit the threshold for forgiveness without the changes.

“This is really huge for us,” he said. “The PPP is constantly changing, but we have to do what we need to do to survive, whether how we deliver or what we offer. That’s the entrepreneurial spirit.”

One drawback: It’s still not clear if loan money spent on business expenses is tax deductible.

“The act does not address the deductibility of expenses funded with forgiven-loan proceeds," said Ken Logsdon, a partner at the international law firm Dorsey & Whitney who has been helping small businesses and banks navigate this program during the COVID-19 crisis.

"Therefore, such expenses remain nondeductible for income tax purposes. Nevertheless, forgiven-loan proceeds do not give rise to taxable income, as provided for in the CARES Act,” Logsdon said.

The drafters of the original law were apparently concerned that a write-off of expenses while leaving the loan untaxed might be seen as double-dipping.

Nearly $130 billion in PPP loan money is still available, according to KBW equity analyst Kelly Motta. Due to red tape and the short time-frame, many small business owners avoided applying.

Now, Congress’s PPP program is more helpful for small businesses and lenders, relaxing time limits all around, Motta said.

In late May, Treasury gave banks up to 60 days to accept or reject a loan-forgiveness request and the SBA 90 days to review those requests.

“Based on these changes, we believe that a greater portion of forgiveness could be pushed into 4Q20 and early 2021,” she wrote in a research note.

As of June 3, SBA’s Bulger said 4,500,009 small business owners across the nation had received a total of $511 billion in PPP loans. The average loan size was $113,465 with 5,456 lenders approving loans.

In Pennsylvania, the program by the end of last month had financed 156,443 loans for $20.4 billion. The same breakdown in New Jersey was 133,366 loans for $16.8 billion,

For more, visit the SBA website: https://www.sba.gov/sites/default/files/2020-06/PPP_Report_200530-508.pdf.