June 18, 2020
Attorney Rebecca Simpson Heimlich
New Regulations regarding changes to PPP in Flexibility Act
On Friday, June 5, the Paycheck Protection Program Flexibility Act was signed into law and significantly loosened many Paycheck Protection Program (“PPP”) rules to make it easier for small businesses to use the loans in a way that will be forgivable. Two of the major changes to the PPP in the Flexibility Act where:
- The loan forgiveness covered period (“Covered Period”) was extended from 8 weeks to 24 weeks, so borrowers have 24 weeks after receiving their funds to spend them
- The required payroll percentage was reduced from 75% to 60%, so borrowers can spend up to 40% on covered non-payroll expenses (mortgage interest, rent, utilities)
These and other changes in the PPP Flexibility Act raised many questions about the impact of the new rules on the calculation of PPP forgiveness.
In the last few days, the Small Business Administration (“SBA”) has issued three new sets of regulations announcing revisions to prior PPP SBA regulations, to make the regulations consistent with the changes in the Flexibility Act.
Major Revision Impacting Self-employed and Independent Contractors
One of the revisions announced by the SBA raises the cap on how much self-employed and independent contractors can pay themselves out of their PPP funds.
Prior to the PPP Flexibility Act and the SBA revisions to the regulations, in general the amount that self-employed and independent contractors could pay themselves out of PPP funds was capped at the lessor of:
- 8 weeks (or 8/52) of 2019 net profit, OR
- $15,385 per individual in total across all businesses
According to a revision issued by SBA yesterday, that cap for the 24-week Covered Period has been raised to the lessor of:
- 2.5 months (or 2.5/12) of 2019 net profit, OR
- $20,833 per individual in total across all businesses
This higher cap applies to those who file a Schedule C or F and who use the PPP 24-week Covered Period (rather than the 8-week Covered Period). Although the Covered Period was increased from 8 to 24 weeks in the Flexibility Act, if your PPP loan was made before June 5, 2020, you may elect to have your Covered Period be the 8-week period beginning on the date of your PPP loan. If, however, you want to take advantage of the higher cap described above, you will need to use the 24-week Covered Period.
As part of our new Small Business Solutions Group, we will continue to stay on top of changes that may impact your PPP loan forgiveness and we will post updates on our blog. If you need assistance maximizing the forgiveness of your PPP loan, please contact Rebecca Simpson Heimlich at 513.797.2856.