By: Bruce J. Legawiec, Partner, Osborne Rincon CPAs
By now, most businesses have heard of the CARES Act program PPP. Round 1 of PPP loans opened in mid-April, and within a few weeks, all funds – $349 billion – had been exhausted. On April 24, 2020, an additional $310 billion was made available for PPP loans.
While there was a mad rush for Round 1 of funding, the rush for Round 2 has slowed and funds are still available as of June 1, 2020 – not because the funds are not needed by businesses – but perhaps in response to the uncertainty of loan forgiveness. When a qualified business receives a PPP loan, the entire amount of the loan may qualify for forgiveness when used for “Qualified Expenses” during the “Covered Period.”
Qualified Expenses include: payroll costs, (including health insurance and retirement contributions), rent, utilities, and interest on debts in existence on February 15, 2020. The “Covered Period” is the 8-week period immediately after the funds are received. Another key requirement is that a business must meet certain levels of employees – termed FTE – Full Time Equivalents. If a business cannot retain its FTE level or does not restore to full FTE level by June 30, 2020, then a portion of the loan will not be forgiven, even if used for “Qualified Expenses” during the “Covered Period.”
For any business that has received PPP funds, it is extremely important to have a clear understanding of the requirements for loan forgiveness and how to best meet the requirements. The good news is on May 28, 2020, Congress passed by a vote of 417 to 1 significant change to the rules regarding loan forgiveness. These changes are positive in that it broadens the time period and use of PPP funds so that more businesses will be able to meet requirements for loan forgiveness. The key changes are: (1) Increase the covered period to spend funds from 8 weeks to 24 weeks, (2) lower the requirement of 75% payroll cost use to 60% and (3) extend the time frame a business has to restore its FTE level from June 30, 2020, to December 31, 2020. These changes are all favorable to businesses and their employees. The Bill is to go to the Senate for a vote the first week in June. Let’s hope it is passed by the time you read this article.
For more information call Osborne Rincon CPAs at 760-777-9805