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PPP Flexibility Act Scrambles Planning But Offers Hope

PPP flexibility Act scrambles planning offers hopeYesterday, the US House of Representatives passed the Paycheck Protection Program Flexibility Act (aka the “PPP flexibility Act.”) And probably next week, the Senate will pass the act (maybe tweaking slightly the details?)

The new statute offers small businesses a bunch of useful new planning options. And, most importantly, it gives small business owners and their employees hope.

In this short post, therefore, I want to summarize the pending law’s details. The new PPP Flexibility Act makes five gigantic changes to PPP loans.

And then, after that discussion, I want to offer up three business planning notions for you to gnaw on over the next few days. Some big issues appear once you dig into the details. You’ll want as much time as possible to work through your thoughts.

PPP Flexibility Act Change #1: Deadline Moves to Year-end

A first important change to note. The act changes the June 30, 2020 trigger date to December 31, 2020.

The June 30 date matters for a bunch of a reasons. For example, it bookends the time frame within which PPP loans are available.

And then most significantly for PPP borrowers, the date sets the deadline for reversing reductions in employee headcounts and pay rates which otherwise reduce forgiveness.

As you maybe know, a borrower loses forgiveness if it fails to reverse earlier reductions in employee headcount or earlier reductions in employee pay rates.

Note: For more information about how reductions in head counts or pay rates matter, peek at our earlier blog post: Losing PPP Loan Forgiveness.

PPP Flexibility Act Change #2: Bigger 24 Week Spending Window

Perhaps the biggest change in the PPP rules? The act expands the window for spending PPP money from 8 weeks to 24 weeks.

You probably know this: To get forgiveness of the PPP loan, a firm needs to spend the PPP money on payroll, rent, utilities and interest within a set interval.

The old interval ran 8 weeks. Now, firms get 24 weeks.

Borrowers get option of continuing to use the old 8 week spending window if they want. But surely most borrowers should use the longer 24 week window.

PPP Flexibility Act Change #3: More Money for Rent, Utilities and Interest.

A related and imminently practical tweak.

The act slaps down the SBA’s rule that limited forgiveness for spending on rent, utilities and interest to 25%. This 25% limit was just something the SBA made up in its rule making, by the way. (Thanks guys.)

Congress fortunately looked at that rule and then at the economy and the pandemic and said, “No, we’re going to limit forgiveness for such spending to 40%. Give everybody a little more breathing room. And flexibility.” (Thank you, Congress!)

PPP Flexibility Act Change #4: Worst-case Scenario Addressed

A change to address a small business’s worst case scenario…

The PPP flexibility act explicitly addresses the awkward situation where a firm can’t return to its previous employment level. In a nutshell, the new law says if you really can’t resurrect your business because of the pandemic or the economy, we’re not going to withhold forgiveness.

But let me quote the actual language because if this bit of the law matters, its details matter.

Specifically, for a firm to not lose forgiveness due to a drop in headcount it needs

to be able document an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020…

Or, alternatively, the firm needs to be able

to document an inability to 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.

Okay, scary to think about. But good to know…

PPP Flexibility Act Change #5: Longer Loan Term

The PPP flexibility act makes one other significant change to the PPP loan program. It extends the two year loan repayment term to five years.

This tweak may not matter to many folks. Surely many more borrowers get full forgiveness given the changes to the paycheck protection program. But this last change provides further cushioning for small businesses who borrowed PPP funds.

Three Quick Business Planning Notions

We all need time to process what the new Paycheck Protection Program Flexibility Act means. (Assuming it becomes law in a few days.)

And obviously, a sober reality permeates the new law: Congress thinks you need more time and flexibility to ramp up your business and rehire employees.

But quickly, the three thoughts pinballing around in my head…

First, if you haven’t yet applied for a PPP loan and you need one? Or if your bank bungled your PPP loan application and you need funds to continue or restart normal operations? You need to apply. Or apply again. Today if possible.

Second, as painful and awkward as it is to contemplate, you need to reexamine your business plan and consider a slower restart. A more gradual ramp-up and return to normality. That may mean furloughing employees in some industries. Or slowing hiring. (Sorry.)

Note: Over at our CPA firm’s website, we’ve got a short article about writing a business plan and a free business planning Excel workbook you can use.

And a third final comment …

While the Covid 19 crisis counts as catastrophic, good reasons exist for optimism about the future and the economy. Pretty clearly the infection fatality rate falls dramatically short of what people originally feared. As that reality percolates through our collective consciousness, the economy surely will improve.

And then another reason for optimism? Congress has shown unprecedented support for the economy and especially for small businesses. Case in point? The PPP flexibility Act. This matters. A lot.



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