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Understanding PPP - Are You Having Paycheck Protection Problems?

On June 5th 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act.

The constantly changing nature of the PPP makes it almost impossible to write an article that will stand the test of time and so what follows below is a basic overview of the key points contained within the latest version of the Act.

Before we go any further, let me just add a disclaimer to say that due to the constantly shifting nature of the PPP you should always consult with an attorney before making any decisions about your use of loan funds received.

For the millions of business owners who received PPP loans, the Act makes it easier to apply for forgiveness.

First, and arguably most important, is the news that borrowers now have up to 24 weeks in which to spend their loan proceeds, an increase from the original time allowed of 8 weeks. This takes the pressure off of business owners who, due to not yet being able to fully re-open, are finding it difficult to spend the funds on payroll expenses during the allotted time. Business owners now have 24 weeks from receipt of the loan proceeds in which to use the funds (or December 31st 2020, whichever is earlier).

Any business owners who have already spent their loan proceeds within the original period would be best advised to file their application for loan forgiveness promptly after the 8 weeks, as if they can qualify for full forgiveness they will be able to get the debt off their books should they need to seek further financing, attract capital, or clean up their balance sheet ahead of a possible sale.

The second major point of the Act is that the previous test that was issued by the SBA requiring that at least 75% of the amount forgiven had to be spent on payroll expenses has now been reduced to 60%.

To be eligible to receive loan forgiveness under the new legislation a recipient of PPP funds will now be required to use at least 60% of the loan amount for payroll costs, and may now use up to 40% for rent, utilities, and interest on secured debt, as defined in the law.

The third key element of the Act was to increase the repayment period for any part of the loan that is not forgiven from two years to five years, with the 1% interest rate unchanged. The first repayment of the loan is to be deferred until the date at which the SBA makes a determination on the loan forgiveness for a borrower, which could be up to 150 days after the submission of the loan forgiveness application under current guidelines.

The Act contains further provisions for the hiring/re-hiring of staff that need to be carefully analysed by business owners and their advisors prior to the completion of the loan forgiveness application, but these go beyond the scope of the intention of this article.

As stated previously, the situation regarding PPP loans is changing constantly and the above information is a summary of the key points from the Act that was signed in to law yesterday. Please ensure that you consult with an attorney, accountant, or advisor before making any key decisions in relation to the allocation of PPP funds.

For more information about the Paycheck Protection Program, or to discuss any aspect of buying or selling a business call me on 407-989-6893.

Simon Harrison

The Harrison Group at Rockrose Realty Inc.

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