The Flexibility Act was Signed Into Law by President Trump 6/5/2020 and this Effects the Way PPP Works for Many Business Owners.
We’re going to break it down the highlights of those changes for PPP Loans moving forward.
The Flexibility Act changes the PPP Loan forgiveness calculation, but we have no word on the loan payment date changing as of now. The new 24 week forgiveness application has not been released yet, and it will not change the loan amount for the PPP Loan program.
Here are some additional bullets to note:
- You have 8 weeks or 24 weeks to spend the PPP money.
- The amount of the loan that needs to be spent on payroll is now 60% instead of 75%.
- Therefore, the amount of rent, utilities and others is now 40% instead of 25%.
- It is still better to use as much as you can on payroll.
- The rehire date has been pushed back to December 31, 2020 to rehire your employees.
- You still need the same number of employees at 40 hours a week you had in 2019. You can have 2 part-time employees to make up the 1 40-hour employee. The FTE credits are based on the number of employees and hours worked in the time periods of 2019, Jan – Feb 2020, and the 8 or 24 payroll periods.
- If an employee refuses to come back on payroll, be sure you have the employee acknowledge that decision in writing.
- The new terms of the loan is 5 years instead of 2 years at 1%. You will most likely need to start paying the loan back before you hear anything on the forgiveness piece of the PPP Loan.
- Utilities, rent and other include items such as electricity, gas, water, telephone & internet.
- Some other utilities not defined in guidance are being interpreted as items such as security, waste management, and any other fixed monthly services in connection to maintaining the facilities operations. In the absence of facilities, transportation costs will be key.
- Transportation, not defined in guidance, is being interpreted as gas for company vehicles, routine vehicle maintenance (no major repairs), 2 months for vehicle/truck lease, operating costs required to transport customers, employees, or product, however, no direct shipping costs.
- If you got EIDL money, the total of $1,000 per employee is a grant already. This was going to be an advance on the PPP money.
Let’s talk about EIDL monies for a moment…
If you are receiving EIDL money you should plan on putting this money into a savings account. There is no timeline on using this money and the life of the loan is 30 years, so don’t spend this money until you are done spending the PPP Money.
When you start using the EIDL money you can (and should) apply it toward business expenses. Your COGS, business overhead, and payroll expenses are perfect situations after the PPP money is used up. However, you should NOT use EIDL funds toward funding your bonus structures, shareholder/owner distributions, or paying on a shareholder loan. And, do NOT, under any circumstance, use these funds to purchase new assets.
If you are taking in sales you can allocate that income for yourself as a business owner or to purchase additional new business assets, but we need to make sure we keep a clear line of which money was used for what.
One more note…
Remember, form 7200 is a credit for company payroll taxes, but this cannot be used during the PPP 8 or 24 week period, so if your PPP money is gone by the end of 2nd quarter we can apply for credit using the 7200 form for your 3rd and 4th quarter payroll.