PPP Extension – Flexibility Act

The Senate has passed the Flexibility Act which will provide some much-needed relief to business owners who took out a PPP loan. The Bill has not yet been signed in to law by the President, but this is expected to happen soon. Here are a few key points on the Bill and how it may affect your PPP loan strategy.

  • This Bill extends the ?covered period? from 8 weeks to 24 weeks.  For those of you struggling to find places to spend the PPP money, it looks like this will no longer be an issue since money can be used for a much longer period.
  • The Bill removes the 25% cap on non-payroll items and replaces this with a  40% limit on non-payroll items, but it appears to include a requirement that 60% of PPP must be used on payroll or none will be forgiven.  We do not see this as a concern for most of our clients as most of our clients should be able to get above the 60% threshold.
  • The Bill allows for you to take longer to get your FTE (full-time equivalent as defined by the forgiveness application we sent out on May 19th) count back to its February 15th level by extending this deadline to any time before December 31st.  We are not sure how the specific language on this will be written for forgiveness, but at first glance, it appears to be much more flexible.

For additional details, we found this Forbes article very helpful.

Forbes – PPP Extension

What does this mean for you?

  • For any of you using a separate account to closely track PPP related expenses, we see this as useful but likely overkill.   The forgiveness application made it clear that PPP forgiveness can be granted as long as the expenses are paid, no matter which accounts it comes from.
  • For those of you that were provided or chose to use a different pay template over your “covered period”, we now see that as largely irrelevant.   You can move back to a more standard pay template for yourself and your family members on the payroll.  We will still likely need to adjust some tax withholding numbers down the line, but that will come in to play once we have more predictability in your collections for the year.
  • This Bill makes it very clear that completing your forgiveness application early would not be in your best benefit.  Before completing your application, you should ensure that you have spent all the PPP loan money (without pushing to come up with things to spend it on), that you have achieved your FTE count that you had as of February 15th and that you have worked with your CPA to ensure the information listed on your application is correct.   The new deadline for FTE count by December 31st puts absolutely no pressure on anyone to fill out this application right away, so take your time.

With any new law, there are many questions about how this will be ultimately implemented, but at first glance this appears to be very favorable to our client base. We will continue to keep you posted on details and let you know when the Bill is officially signed in to law.