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Home›Saving Investment›Some good news potentially on PPP

Some good news potentially on PPP

By Brian D. Smith
March 9, 2021
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Bruce J. Legawiec

The CARES Act, which was signed by the President on March 27, authorized the US Department of the Treasury to make regulations for the Payroll Protection Program (PPP) loan program which is administered by the Small Business Administration.

Many local and national businesses have applied for and obtained PPP loans under the CARES Act. The “loans” were meant to help small businesses retain their employees during the COVID-19 crisis. When used according to specific requirements (as “qualifying expenditure”) and spent within the “covered period” (eight weeks after receipt of PPP funds), borrowers of PPP funds can then request a loan forgiveness. This, of course, sounds great, and many companies have rushed to apply for a portion of the $ 349 billion in forgivable loans available. The funds available in the first round of the PPP were exhausted within a few weeks. The second round of PPP funds amounting to $ 310 billion was approved on April 28. At the end of May, PPP funds are still available.

However, even though PPP funds have been received, many companies have yet to be able to fully utilize the funds. It’s important to remember that the main goal was to get funds into the hands of businesses so that business owners were encouraged to retain and pay their employees.

The problem is that due to government restrictions, many businesses were unable to open or were only able to operate on a very limited basis. Local restaurants are a prime example. Keep in mind that only funds spent within the eight week “covered period” after receipt are eligible for a rebate. Many companies received PPP funds in early April, when the funds first became available. The dilemma now is that the eight week period will soon expire and they have not had the opportunity to spend the P3 funds; the unwanted and unintended result is that a significant portion of the PPP loan will not be canceled. This is not what PPP seeks.

There are other requirements regarding FTE (full time equivalent) levels, the specific use of funds for ‘eligible expenses’ (i.e. salary costs, rent, utilities and interest on the debt) and the limits on wage cuts which are, of course, important. However, space is limited, and I think extending the “period covered” to more than eight weeks will go a long way in correcting what I perceive as an unintentional flaw in the P3 forgiveness formula. This unintentional flaw being the forgiveness of PPP funds… even if they are spent on “qualifying expenses”, such as payroll. This happens when PPP funds are spent after the “covered period”.

There is good news on the horizon, however. On Thursday, May 28, 2020, Congress passed by 417 votes to one of the important changes to the rules regarding the use and remittance of PPP funds. I think these proposed changes would go a long way in encouraging businesses to rehire people, reduce the number of unemployed and stimulate our economy. This is the goal of PPP.

The main proposed changes are: (1) Increase the “covered period” during which the company must spend money to be considered for the rebate from 8 to 24 weeks, (2) reduce the requirement by 75% use of salary costs at 60% and (3) extend the time available for a company to restore its FTE level from June 30, 2020 to December 31, 2020.

These changes will go to the Senate next week for a vote. I encourage you to reach out to our State Senators and ask them to support these business and employee friendly changes to PPP.

Bruce J. Legawiec

Bruce J. Legawiec is a Palm Desert-based CPA and Partner at Osborne Rincon in La Quinta. He has lived in the desert since 1979.

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