Revisions to PPP Loan Forgiveness and Update to the EIDL Funding Program
Revisions to PPP Loan Forgiveness and Update to the EIDL Funding Program
Thanks to an overwhelming response from the small business community, Congress recently made important revisions to the loan forgiveness guidelines. This issue will cover the revisions as well as an important update regarding the EIDL funding program that was recently re-opened by the SBA.
PPP Loan Forgiveness Revisions
Congress recently passed legislation that made the following much-needed changes to loan forgiveness:
- Lowered the percentage of loan proceeds that must be spent on payroll costs from 75% to 60%.
- Increased the potential period of time to use loan proceeds from eight weeks to 24 weeks.
- Extended the period of time to reverse decreases in employment and/or wage levels to December 31. The original deadline was June 30.
- Lengthened the potential period of loan maturity from two years to five years.
- Allows borrowers to defer payment until loan forgiveness can be determined, instead of six months after loan disbursement.
- Maintains the deadline to apply for a PPP loan by June 30, 2020.
The following are several key observations, in Q&A form,
regarding the above revisions:
What is the simplest way to obtain loan forgiveness?
Use most, or all, of the loan on payroll and payroll-related costs and ensure that employee counts remained constant. But, above all else, make sure you meet the payroll minimum.
Do I lose forgiveness if I can’t use 60% of the loan on payroll costs?
No, but it will proportionately reduce the amount available for forgiveness. Which means you will pay back a pro-rated portion of the funding.
Would there be a reason to elect the eight-week time period for fund-use instead of longer than 24 weeks?
The 8-week period is favorable to small businesses who are able to use the appropriate amounts during the 8-weeks in a way that qualifies for full forgiveness. The 24-week period is more beneficial when the small business is not able to use the loan funds and meet the 60% payroll test using the 8-week period. However…..
Word of Caution!
Those that use the longer covered period of up to 24 weeks will have to maintain employment levels through the entire 24-week period or restore wage and full-time equivalent employee counts by December 31, 2020. A thorough analysis of the loan forgiveness calculation should be performed with your lending institution before making a decision on the time period.
How do I apply for Loan Forgiveness?
Your PPP lender will contact you on or around the 8–week point. At that time, you will either elect the 24-week period or retain the 8 week period. Apparently, those whose loan occurred after June 5 are required to use the 24 week test. NOTE: we will monitor this for clarification.
I received a PPP Loan and a EIDL Loan.
The amount eligible for PPP forgiveness is reduced by the amount of the EIDL quick advance grant received, if any.
SBA Re-Opens EIDL Loan Program
To further serve the small business community including non-profits, on June 15 the Small Business Administration reopened the Economic Injury Disaster Loan (EIDL) and EIDL Advance program portal to all eligible applicants experiencing economic impacts due to COVID-19 today.
