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If you received a loan you will now be required to spend 60% of the funds on payroll for full loan forgiveness.

June 15, 2020

3 Min Read
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MORE FOR PAYROLLS: More than 120,000 Paycheck Protection Program loans exceeding $7 billion have gone to farmers and other businesses in agriculture. Recent changes to the program offer more flexibility for using the funds and a longer time frame to spend them. Oleg Elkov/Getty Images

The Paycheck Protection Program, launched in early April, offered small businesses potentially forgivable loans to cover payroll, rent and other approved expenses during the COVID-19 crisis.

Millions of loans have been extended to U.S. businesses and independent contractors. Nationally, as of May 30, 4.4 million loans totaling $510 billion, including more than 120,000 loans exceeding $7 billion to farmers and other businesses in agriculture, forestry and fishing, have been funded.

While a large number of businesses stand to benefit from the program, concerns have been raised about the requirements to get a loan forgiven, with some arguing that the time frame to spend the funds is too short and that the requirement to spend at least 75% of the money on payroll is too restrictive for businesses that have not been able to reopen. Loan amounts not forgiven under the program must be paid back over a two-year period.

In response, Congress passed the Paycheck Protection Flexibility Act, which was signed by President Donald Trump on June 5. It grants more flexibility to borrowers seeking forgiveness of their loans in several ways:

  • Extends the period for businesses to spend the funds in order to be eligible for loan forgiveness from eight weeks up to 24 weeks, or Dec. 31, 2020, whichever comes first.

  • Lowers the payroll expenditure requirement from 75% to 60%. Recipients will now have to spend at least 60% of their loan amount on payroll to be eligible for forgiveness.

  • Grants borrowers the ability to use the full 24-week period (or until Dec. 31) to restore their workforce levels and wages to pre-pandemic levels, instead of the previous deadline of June 30.

  • Allows borrowers the ability to adjust workforce levels without affecting loan forgiveness if they can’t find qualified employees or are unable to restore business operations to pre-pandemic levels due to COVID-19 related restrictions.

  • Allows businesses that received PPP loans to delay payment of their payroll taxes in certain circumstances, which was previously prohibited under the Coronavirus Aid, Relief and Economic Security Act.

  • Extends the loan payment deferral period from six months to “the date on which the amount of forgiveness … is remitted to the lender,” or a date of 10 months after the last day of the covered period, whichever comes first.

  • Extends the repayment period of any loan amount not forgiven from two years to five years, with the interest rate remaining at 1%.

Some were concerned that the new law created a loan forgiveness “cliff,” which meant that 60% spent on payroll was a threshold for any loan forgiveness. A June 8 statement from the Small Business Administration and the U.S. Department of Treasury, however, indicated that borrowers would be eligible for partial loan forgiveness even if they spend less than 60% on payroll.

It should also be noted that while this legislation may allow additional flexibility for PPP recipients, they will still be able to receive loan forgiveness under the original terms and conditions of the program. Borrowers who received their loans prior to the passage of the extension bill may still use the original eight week covered period rules when applying for loan forgiveness.

For a more in-depth review of what this means for producers, Farm Credit East is holding weekly office hours on Wednesdays at 9 a.m. focused on answering Paycheck Protection Program loan forgiveness questions.

To review a listing of PPP loan forgiveness questions, visit the Frequently Asked Questions page.

Source: Farm Credit East, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.

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