Road to Recovery: How the PPPFA Helps Maximize Your PPP Benefits

How the PPPFA updates the PPP to help you maximize loan forgiveness

As the nation slowly begins to reopen, daycares, preschools, school-age programs, and camps still have a lot of details and logistics to work out. For those who relied on the welcome relief from the CARES Act, and the Paycheck Protection Program (PPP) specifically, there is a new piece of legislation that will help you get back on your feet and stay that way by providing you with simple ways to maximize loan forgiveness.

It’s called the Paycheck Protection Program Flexibility Act of 2020 (PPPFA).

Here’s what you need to know about the new legislation and how it might benefit your childcare business:

The PPP loan forgiveness period has added flexibility.

As weeks turned into a month, and one month became three months, it became clear that the first 8 weeks as the initial PPP forgiveness period was not going to work for many small businesses who were forced to stay closed. Now, borrowers can use a longer period of 24 weeks to qualify for full forgiveness of the loan.

Small businesses who received loans before the PPPFA was enacted can choose to extend the 8-week period, or they can stick with the original timeline.

PPP loan maturity is now 5 years.

Given the length of shut-downs and the drastically reduced income being generated by small businesses, legislators called for a longer term to allow for recovery from the economic crisis COVID-19 created.

The PPPFA stretches the time you have to repay borrowed funds through the original PPP from 2 years to 5 years, but you can adhere to the original 2-year repayment timeline if you choose.

Loan forgiveness can cover more operational expenses now.

Under the PPP, loan forgiveness required 75% of the funds to be used for payroll costs. This was intended to encourage small businesses to keep employees on the payroll for as long as possible and minimize the financial hit to those families.

As forced closures extended to longer periods of time, it became impossible for many businesses to be able to do this, but the operational expenses to maintain facilities and pay rent, mortgages and other business loans didn’t go anywhere.

The PPPFA reduces the 75% payroll cost requirement to 60% of the covered loan amount. The Treasury Department or Small Business Administration will issue additional information to clarify exactly how this will change the forgiveness calculation or whether the existing sliding scale will remain in effect.

The PPPFA extends Safe Harbor deadlines.

Small business borrowers now have an extra six months to restore any reductions in salaries, hourly wages, or full-time equivalency levels. The deadline is now December 31, 2020 instead of June 30, 2020.

What does that mean? It means the pay cuts and reduced hours your dedicated employees had to agree to accept to help keep you in business can be restored to what they were pre-COVID-19 through the end of 2020, which can help you obtain the maximum amount of your PPP loan available for forgiveness.

Many childcare centers aren’t in a position to do this by the original deadline, so the extension will not only help you retain your staff and restore their income, it can also help you reduce the amount of the PPP loan you’ll need to repay.

The PPPFA adds exemptions to the FTE requirements that can affect loan forgiveness.

What if you can’t re-hire qualified staff or find replacement staff right away? Childcare isn’t exactly the highest-paid profession as it is, and the long layoff may have prompted some to look for other careers. You may encounter some trouble bringing staff back and achieving that 60% payroll cost requirement for PPP loan forgiveness.

What if you aren’t even close to returning to the same level of business? Even if your local government is allowing you to reopen, with the social distancing guidelines in play and the slow return to work for folks with non-essential businesses, your program’s cash flow may not look anything like it did back in February for a long time.

The PPPFA allows for exemptions to the FTE reductions in loan forgiveness if you are able to document your inability to return to the same level of operations due to COVID-19 mandates or bring back/ hire new qualified staff to meet the FTE requirements.

PPP borrowers are eligible for employer payroll tax deferral regardless of loan forgiveness.

Section 2302 of the CARES Act allowed borrowers to defer the employer portion of Social Security taxes. As you recall, Section 2302 enabled you to forgeo making those payments until your PPP lender determined whether you were eligible for loan forgiveness, then pay it in two lump sums at the end of 2021 and 2022 instead.

This meant that as soon as a small business received word that the PPP loan was forgiven, the small business would need to start paying the employer portion of the payroll tax again right away.

Now, the new PPPFA legislation allows any PPP borrower to defer employer Social Security taxes, regardless of whether the loans are forgiven. You’ll still need to make the lump sum payments in 2021 and 2022, but you can defer for the remainder of 2020 if you so choose.

What if I haven’t applied yet for a PPP loan?

The PPP loan program still has some funds available!  You can view a list of participating lenders here.

Written by: Wendy Young on Jun 16 20

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