Treasury Issues Harsh Forgiveness Regulations—What You Need to Know
On May 27, 2020, the House passed the Paycheck Protection Program Flexibility Act by 417-1, which attempts to ease restrictions on small businesses as they seek loan forgiveness under the Paycheck Protection Program authorized by the CARES Act.
The House bill comes on the heels of new Treasury Department “Interim Final Rules” on PPP loans issued late on May 22, right before Memorial Day weekend. These new regulations provided more complicated and harsher requirements for small business owners to apply for and receive PPP loan forgiveness.
Starting with the good news, the House bill addresses many of the concerns expressed by small business since the passing of the CARES Act, which created the PPP. First and foremost, it reduces the amount of the loan needed to be spent on payroll from 75% to 60%, thus increasing the amount of funds available for other expenses from 25% to 40%. These expenses still include rent, mortgage payments, utilities, and interest on loans. This change is less than the 50-50 level most small business advocates were seeking, but it is still an improvement.
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The plan outlined in the bill would also offer the following:
Extend the window businesses have to use the funds from eight weeks to 24 weeks
Push back a June 30 deadline to rehire workers to December 31, 2020
Provide more leeway on loan forgiveness for business owners who show they could not rehire workers or reopen due to safety standards
Extend the time recipients have to repay the loan
Let companies that get loan forgiveness defer payroll taxes