Valley Voice: Some potentially good news about PPP

The CARES Act that was signed by the president on March 27, authorized the U.S. Department of the Treasury to issue regulations for the Payroll Protection Program (PPP) loan program that is administered by the Small Business Administration.

Many local and national businesses have applied for and received PPP loans under the CARES Act. The “loans” were meant to assist small businesses to retain employees during the COVID-19 crisis. When used according to specific requirements (as “qualified expenses”) and spent during the “covered period” (eight weeks after receipt of PPP funds) the borrowers of PPP funds may then apply for loan forgiveness. This, of course, sounds great, and many businesses rushed to apply for a portion of the $349 billion of available forgivable loans. The available funds in round one of PPP were used up in a few weeks. Round two of PPP funds in the amount of $310 billion was approved on April 28. In late May, there are still PPP funds available.

However, even though PPP funds have been received, many businesses have not yet been able to fully utilize the funds. It is important to remember: The primary goal was to put funds in the hands of business so that business owners would be encouraged to retain and pay employees.

The problem is that due to government restrictions many businesses have not been able to open or have only been able to operate on a very limited basis. Local restaurants being a prime example. Keep in mind, only funds spent in the eight-week “covered period” after receipt qualify for forgiveness. Many businesses received PPP funds in early April when funds first became available. The quandary now is the eight-week covered period will soon expire and they have not had the ability to spend PPP funds; the undesired and unintended result is a significant portion of the PPP loan will not be forgiven. This is not the intended purpose of PPP.

There are other requirements regarding FTE (full time employment equivalent) levels, specific use of funds for “qualified expenses” (being payroll costs, rent, utilities and interest on debt) and limits on reduction in wages that are, of course, important. However space is limited, and I believe an extension of the “covered period” to more than eight weeks will go a long way in fixing what I perceive to be an unintended flaw in the PPP forgiveness formula. That unintended flaw being non-forgiveness of PPP funds ... even if spent on “qualified expenses,” such as payroll. This happens when PPP funds are spent after the “covered period.”

There is, however, some good news on the horizon. On Thursday May 28, 2020 Congress passed by a vote of 417 to one significant changes to the rules regarding use and forgiveness of PPP funds. I believe these proposed changes would go a long way to encourage businesses to hire people back to work, reduce the unemployment rolls and help to stimulate our economy. This is the purpose of PPP.

The key proposed changes are: (1) To increase the “covered period’ in which business must spend money to be considered for forgiveness from 8 to 24 weeks, (2) reduce the requirement of 75% payroll cost use to 60% and (3) extend the time frame that a business has to restore its FTE level from June 30, 2020 to December 31, 2020.

These changes will go to the Senate this coming week for a vote. I encourage you to contact our state senators and ask them to support these business and employee favorable changes to PPP.

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