Although forgiveness for Paycheck Protection Program (PPP) loans is a foremost topic on the minds of borrowers, many experts are saying borrowers should not rush to apply for forgiveness. Long-expected FAQs expected to clarify many PPP-related issues are still awaited from the U.S. Small Business Administration (SBA) and Treasury, and the SBA issued a notice late last month that indicated it would not begin accepting PPP forgiveness applications from lenders until a new software platform currently under development goes online in mid-August. Plus, new legislation may delay the launch even further.
Meanwhile, members of both the Senate and the House went home last week without progress on two significant issues – dealing with the blossoming crisis around funding the U.S. Postal Service, and a new stimulus package would include updates to the Payroll Protection Program. Unless recalled earlier, the two chambers are officially in recess until September 8 and September 14, respectively. Each has a version of the new stimulus package – the $3 trillion HEROES Act in the House and the $1 trillion HEALS Act in the Senate. A series of executive orders released by President Trump has made the issue less clear, but both sides remain committed to passing a new package and were about $1 trillion apart on issues such as liability protection for corporations and aid for states and local municipalities.
Thankfully for startups and small businesses out there, expanded PPP relief is something the bills in both chambers conceptually agree upon, although the Senate’s HEALS Act goes much further.
The Main Differences Between the HEROES Act in the House and the HEALS Act in the Senate –
The HEALS Act adds around $190 billion in new funding to the program and attempts to fix some of the issues that were faced by PPP v1.0. In particular, the Senate bill limits new (and second) PPP loans to businesses with less than 300 employees *and* that can show revenue has fallen by more than 50% in the first or second quarter of 2020 relative to the same period in 2019. The Senate bill also includes $100 billion in new funding for seasonal businesses and those in low-income areas, structured as 20-year loans of 2x annual sales up to $10 million at 1% per year. The HEROES Act, meanwhile, doesn’t add additional funding for PPP specifically, preferring instead to support other areas like state and local relief, stimulus checks, and unemployment, although it does add $10 billion to the SBA’s depleted EIDL grant program.
Use of Funds/Payroll Requirement
Both the HEALS and the HEROES Acts allow existing PPP borrowers to take down a second loan, eliminate the 75% payroll requirement for new PPP loans, and extend the application period to Dec. 31. From there, HEROES allows borrowers to spend PPP funds over a 24-week period, rather than eight. HEALS, meanwhile, maintains the requirement that 60% of the loan proceeds be utilized for labor costs in order to receive full loan forgiveness but expands the list of other non-labor expenses that can be counted for forgiveness, such as covered supplier costs, worker protections, and operational costs.
The Senate’s HEALS Act dramatically streamlines the forgiveness process. PPP loans of under $150,000 require just a borrower’s attestation that the funds were spent in compliance with the program and a requirement to maintain records for three years. Loans of $150,000 – $2 million need to certify directly to the SBA and not their bank, and also keep records for three years. It also allows borrowers to select a preferred 8-week period through 2020 to use the forgivable loan proceeds. HEROES removes the requirement for at least 25% of PPP loans to be devoted to non-payroll operating expenses.
Unfortunately, neither bill clarifies whether expenses forgiven through a PPP loan are deductible as normal business expenditures, leaving forgiven PPP funds essentially taxable. This will likely remain an open question until the IRS chimes in at the end of the year.
Ultimately, both sides in Congress want to get another stimulus package approved, and leaders in both the Senate and the House may recall Congress to get it done before they reconvene in September. Executive orders have made things less clear, but the President has expressed support for a bill he can sign. Although the devil is in the details, it seems likely that the ultimate legislation will be passed before the election, and include additional funds for new PPP, relaxed forgiveness guidelines and expanded eligibility.
Until then, if you already have a PPP loan, stay in close contact with your lender and follow their guidance.