Lawmakers Add Major Enhancements To PPP Loan Forgiveness Program For Small Businesses

The president signed into law today a bipartisan congressional bill which enhances the Payroll Protection Program (PPP) forgiveness program by tripling the time for wage loan forgiveness and increasing the amount of non-wage expenses which can be forgiven, among other things.

READ: Stimulus Bill: Making Sense Of The Options For Small Businesses & Employers (Grants + Loans)

A few key elements of the bill:

  • Previously you could only get loan forgiveness for 2 months of payroll and other expenses. Now, they’ve increased that to 6 months, tripling the amount of loan forgiveness possible with the program.
    • Note, total loan amount that each business is eligible has not changed, and you obviously can’t get forgiven more funds than the full amount of the loan. A lot of businesses were not able to use all the loan funds within 2 months on eligible expenses, and this change gives them three times the amount of time to do so.
    • Final date to use funds and get loan forgiveness is December 31, 2020. Thus, any PPP loan money received in July will not get the full 6 months to use the money. But any loans received by the end of June will have a full 6 months from receipt to use the money.
  • Previously you could only get forgiveness if you used 25% or less on non-payroll expenses. Now they’ve changed that, and you can use up to 40% on non-payroll expenses.
    • For example, suppose you want forgiveness for two employees payroll and for your rent cost. Your rent cost is $40,000 over the course of 6 months and your employee cost is $60,000 over the course of 6 months. Previously, you would only be eligible for $75,000 of forgiveness whereas now you’ll be eligible for the full $100,000 of forgiveness.
  • You can rehire workers anytime before the end of 2020 and still be eligible for loan forgiveness; previously the deadline was June 30.
    • This is huge since a lot of businesses don’t have much work now and have fired/furloughed their employees (and put them on unemployment) until things pick up. With this new measure, a lot of businesses will be able to bring back their workers, say, in two months, and still be eligible for loan forgiveness.
    • Just keep in mind, all money spent to get loan forgiveness must be completed by end of year, so if you bring your employees back in December, you’ll only end up getting 1 month of forgiveness.
    • The new law also eases some of the rehiring requirements for certain instances where the business was unable to rehire workers.
  • Separately, the new law also extends out the loan time for the parts which are not forgiven from 2 years to 5 years at the same 1% interest. This is only for those who borrowed after June 5th.

Disclaimer: Please do your own research. It’s possible some of this information isn’t written with perfect accuracy. Just trying to convey some basic ideas here.

Also worth noting a negative element of the bill which is that you mess up and don’t spend at least 60% on payroll, you get no forgiveness at all. (Previously, you were still eligible for partial forgiveness if you spent less than 75% on payroll.) Update: apparently, the SBA does not plan on enforcing this. So you should be able to get partial forgiveness if you spend less than 60% on payroll.

When the CARES Act initially passed, I wrote an article evaluating the different options. This change makes the PPP option much more enticing for many people, and some of the analysis given there will change with the new legislation. PPP money is still available, so you can still apply now and get full benefit.

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    Chuck
  • On June 5, 2020, 15:16

View Comments (30)

  • This isn't going to bring the economy back.

    What we need is monthly payments to all Americans for at least 6 months for $2,000 per American.

  • "Previously you could only get loan forgiveness for 2 months of payroll and other expenses. Now, they’ve increased that to 6 months, tripling the amount of loan forgiveness possible with the program."

    This is not clear and will likely not be the case. While my reading of the PPP Flexibility Law makes it sound like forgiveness will be increased to 24 weeks, the SBA's interpretation of the previous CARES act restricted forgiveness to 8 weeks. The SBA Administratively decided to do this.

    Whether the SBA Administratively allows 24 weeks worth of forgiveness or simply 8 weeks of forgiveness but you have a 24-week period of which to use those 8 weeks, is to be determined.

    I do think we should pressure our congresspeople to force the SBA to follow the LETTER of the law, not their interpretation of intent, which is how we ended up with 8 weeks of forgiveness and no retirement/health insurance allowed for sole props because according to the SBA "that would create a windfall unintended by congress"

  • The way I understand it is it's forgivable if you use at least 60% of the funds for payroll. So, say I am a single owner one person LLC who gets $6k in PPP funds, and deposits it all as a lump sum to an account and denotes as PPP and will use to pay myself as owner compensation. I pay myself as needed, and and don't do payroll. Is that all that's needed? How would that be noted on next year's tax form?

  • Does anyone know where we can get reliable information about how this would apply to sole proprietors who only hire independent contractors? it's been a moving target ever since these programs were announced, very frustrating.

    If we have six months, can we seriously only get 2.5 times monthly "payroll"?

    How is "payroll" calculated if you file on Schedule E and don't issue yourself a 1099? also frustrating because net income would be much higher without depreciation, and depreciation is a historical expense taken in the present year.

    I didn't go near this because the big banks like Chase were mistreating true small businesses in favor of their deep pocket clients. It's not clear to me where truly small businesses without traditional employees can get reliable advice about how to structure this.

    It might be worth switching to this from unemployment after the $600 payments run out ... incidentally, EIDL is not much easier to navigate. and has also been a moving target.

    • Obviously, look into the details more on you own, but i think generally the rules for Independent Contractors are diffferent than normal businesses. Also it may be only for schedule C filers, and not Schedule E.

      • Per the SBA on PPP loans: It is not acceptable for us to use Schedule E income of any kind, including rental income, distributions, withdrawals or guaranteed payments from S-Corps, LLC’s or other entities, that would be reflected in K-1 statements.

    • How can self proprietor file for UE? Do you play into the system with employment taxes while being self employed?

      Also what does paying yourself from schedule C mean? You have income and expenses on schedule C. Whatever is left is what is you pay yourself. Is that your payroll?

      • @guest_993194 Pandemic Unemployment Assistance is designed for the self employed, a rare opportunity, as well as for those who are stuck at home because of having or caring for someone with COVID or if they can't work because the daycares are closed. They determine your benefits from Schedule C, 1099s and you are entitled to the extra $600/week that the feds tacked on.

        When applying for and receiving the PPP, the amount allowed was determined by my schedule C, line 31 (net income after expenses line). The loan forgiveness for sole proprietors is 8 weeks of replacement pay. So if, for example, my net income is 60K, I could borrow up to 2.5 months of that, or $12500, but forgiveness only allows 8 weeks (60K/52 x 8). So in this scenario, I would pay myself $1,154 per week for 8 weeks. There are some other expenses that can be forgiven as well but most sole proprietors would not have those expenses.

        Being self employed, we don't have many opportunities like this so I threw all my applications in at once to see what stuck. UI came through first and then PPP. You can't take both at the same time but since I didn't get the PPP until 9 weeks had passed, I was able to use them consecutively.

        • Same. I app'd everything, since I didn't trust what would come through if anything. For me it was EIDL that came through first ($1k, then the full amount a moth later), then PUA...kinda (dates are messed up, I got one week of payments and no back pay before there was fraud in my state and they switched everyone to checks- avg mail from the state has been 3-4 weeks late so hopefully in a month?). PPP I app'd 4 times- Chase, a local bank, and 2 fintechs, and nothing.
          TBH what helped me the most were specific grants to my professions from non profits and private individuals.

          • That's great that you were able to get anything. I did finally get the portal link for the EIDL but didn't do anything with it (no 1K either). I got enough to keep me going. It seems like the independent contractors or self employed always got overlooked so I was happy to get anything. Last thing I wanted to do was get like a real job ;)

    • There are lots of articles about how PPP works for sole proprietors but a lot of them say the same thing: It's still 8 weeks of payroll that's eligible for forgiveness. As far as this added law, the sole proprietor calculation hasn't changed as far as I can tell, only the ability to have the time flexibility. There was some grumblings about UI and PPP, that there was an issue of not using PPP first if funded. I went off UI when I got funded myself and am currently paying myself weekly based on my Schedule C (8/52).

      I got mine from Chase, they were one of the few banks that funded all their applications. They've been my main biz bank for years, haven't had an issue. I didn't get in on the first round, mainly because I couldn't apply until 2 days before it ran out, but was funded the first week of the second round.

    • Yeah, I'm wondering the same thing. I collect rent one 1 property. Do I qualify for anything?

      • Apply for the EIDL loan advance, even with zero employess you should be able to get the EIDL loan advance and maybe the loan too (the $1k advance doesn't have to be paid back). The PPP loan is another deal and is for companies that pay people using a W-2 form, or else for sole proprietors who show an income on schedule C. Schedule E income (what it would be for a rental property) doesn't qualify for PPP loan application----based on what I've read. You've probably already figured out this by now.

  • My wife's employer just took all the leftover money and gave it to their employees as a bonus... yesterday. Nice timing.

  • So, just spend it all on payroll and it’s all forgiven? Sweet.

  • This is great news for everyone, liberals and the fake conservatives as they feed at the government trough. Haven't seen many "pulled myself up by the bootstraps" BS lately from the posers.

      • Respectfully, please, no CENSORSHIP. A person's opinion is their own. No harm in an opinion. There is a far greater harm in taking away someone's voice. They simply posted their opinion on a program passed by politicians -- which makes it ON topic.

        • I appreciate respectful political debate, we're just asking that it be done on other platforms since political conversations rarely remain respectful and cause division among readers and the community. I don't think we've ever actually deleted a political comment, we just respectfully ask people to take those conversations elsewhere.

          • Freedom of expression includes the freedom to *not* say something or support a certain viewpoint - given this blog is a private entity, if you decide not to host political comments (whether in general or of a certain bent), that would not be censorship, that would be freedom of the owner's expression.

  • This actually sucks. You have same amount of money, which is 2.5x of monthly payroll. But now you have to stick to that payroll for 6 months with 2.5 month of money.... If they gonna give people 6 months to spend, they should provide at least 4month of payroll. Since we obviously shut down for more than 2.5 month.

    • You have the flexibility to utilize the 24 weeks but can still stick with the original 8 week period is how I am reading it. As an independent contractor, I'm sticking with that so I can get the paperwork in and get forgiven as quickly as possible.

      Are you still shut down? In Illinois, we shut down on 3/21 and started reopening on 5/29, less than 2.5 months.

      • We are opening right now but at lower capacity. I just don't see how we can stick to the level of payroll for 6 months with 2.5 month of money without eating into our savings and harm the business in the long run.

        If sticking to 8 weeks is an option, I will do that. After that, I will most likely reduce my own salary and keep my FTE's salary level.

        • I don't think the intention was to spread out payroll for 6 months, but to add flexibility of not having to do the immediate 8 weeks after funding. I don't have employees so not sure how the headcount rule is affected as far as forgiveness goes.

          I know a lot of places are not being allowed to go even 50% capacity, that truly sucks. Some restaurant places by me didn't come close to breaking even with only having curbside. Opening at 25% capacity increased their overhead and still only taking in a little more.

      • But presumably you haven't 100% reopened in Illinois yet, right? For example, what about small businesses like indoor performance halls (music, plays, etc)? There are many types of businesses that are still not open in many states that have partially reopened, so partial reopening doesn't mean the same thing to every type of business.

        Here in California, nail salons are not open yet, because there are claims that the first documented community transmission in our state happened in a nail salon.

        • That's why I asked if they were still shut down. It's been just under 2.5 months since states started closing things. There are some business that won't open until next year easily. Our salons are open despite two positive stylists exposing 140 customers (wearing masks though).

          As an independent contractor I am back up to maybe 35-40% of work. I've kept reserves so the PPP and UI has allowed me to avoid them at the moment, but it'll be a full year before I am back to 100%. While it seems like an easy request to say they should give us 4 months of payroll, I am just glad for the 8 weeks I may be forgiven for.

    • Hmm, interesting point, I need to research that more: until now, you only had to keep employees for those two months, and now you need to keep them for 6 months, regardless? That might be true, but I'm unsure.

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