Congress Liberalizes PPP Loan Forgiveness

Congress Liberalizes PPP Loan Forgiveness


  • Learn more about the confusion regarding PPP loan forgiveness.
  • Find out details about the extended “covered period.”
  • Learn more about loan maturity extension.
  • Find out how limits on expenses other than payroll were reduced.
  • Discover exemptions for those unable to rehire or replace employees.
  • Learn more about both loan forgiveness and allowable payroll tax deferral.

If you are the owner of a small business that was able to obtain a Paycheck Projection Program (PPP) Loan, you have probably already started worrying about how to spend the loan proceeds to maximize PPP loan forgiveness.

When these loans were first offered, the key word business owners heard was “forgiveness.” That created a national stampede to apply for these loans. Most potential borrowers had little or no knowledge of how they must utilize loan proceeds to qualify for loan forgiveness. This, combined with the lack of initial guidance from the Treasury and Small Business Administration (SBA), added to the confusion.

How to use your PPP for maximum loan forgiveness

The CARES Act, the legislation that created this loan program, specified that loan proceeds could pay for business payroll, lease payments, mortgage interest, and utility payments. It also specified the loan funds were to be used during the eight-week “covered period” that commenced immediately after receiving the loan proceeds. That meant the forgiveness clock started ticking the day the loan proceeds were deposited in the employer’s bank account.

To add to the confusion, the SBA decided to limit uses other than payroll to 25% of the amount forgiven. This limitation did not appear in the CARES Act.

The CARES Act includes generous unemployment benefits that sometimes provide income greater than the employee’s former wages. As a consequence, many employees are resisting returning to work. This makes it difficult for employers to maintain their pre-COVID payroll and head count, which are also requirements for forgiveness.

PPP loan forgiveness application

How can the Paycheck Protection Program Flexibility Act help?

Seeing the confusion caused by the forgiveness issue, Congress passed the Paycheck Protection Program Flexibility Act (PPPFA) of 2020. This act makes substantial changes to the program:

  • The covered period has grown from 8 weeks to 24 weeks after the origination of the loan or December 31, 2020, whichever occurs first. This gives employers substantially more time to comply with the PPP loan forgiveness requirements and other terms of the loan. If you received the loan before the enactment of the PPPFA, the borrower has two choices. They may choose either the original 8-week period or the new 24-week/December 31, 2020 period.
  • Loan maturity has increased from 2 years to a minimum of 5 years. This gives borrowers a longer amount of time to pay back the portion of the loan not forgiven. For loans finalized prior to the PPPFA, the lender and borrower can agree to change to the longer term.Congress has rebutted the administration’s attempt to limit the uses of the funds for other than payroll to no more than 25% of the forgiveness. The Act instead requires at least 60% of the loan proceeds to be used for payroll for full forgiveness. Additionally, up to 40% can be used for business rent, mortgage interest (but not for prepayment of the interest or for payment of principal) and utility payments.
  • To alleviate employers’ rehiring problems, the Act provides an exemption for employers that are unable to:

o Rehire an employee who was working for the employer on February 15, 2020,

o Hire similarly qualified employees on or before December 31, 2020, or

o Return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.

  • The deferral of payments of the PPP loan principal, interest and fees that was originally 6 months to one year is changed by the Act to be until the date the loan forgiveness amount is remitted to the bank by the SBA.
  • The original rules of the CARES Act prevented employers who received PPP loan forgiveness from being able to defer payment of payroll tax, another provision of the CARES Act. The PPPFA changes that rule to allow qualified employers to take advantage of deferring 2020 payroll tax payments even if they’ve received PPP loan forgiveness. The deferral allows you to defer 50% of the eligible payroll taxes until December 31, 2021 and the balance to December 31, 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security (OASDI) payroll tax, and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer’s 6.2% Social Security (OASDI) tax rate), effective for wages paid March 27, 2020 through December 31, 2020.

Since the PPPFA passed, the SBA has revised the PPP loan forgiveness application and added an EZ application. Here are the links to the applications and instructions:

Do you have questions about how these changes might apply to your situation or need assistance completing your forgiveness application? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!

For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.