Published on July 13, 2020
For businesses in the wine industry struggling to stay afloat during the COVID-19 pandemic, the Small Business Association’s (SBA) Paycheck Protection Program (PPP) provides much needed financial relief. A part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the PPP program provides short-term financial assistance to eligible businesses. Businesses may have the entire loan forgiven if they meet specific requirements and spend PPP funds on allowable expenses.
Originally, in order to qualify for forgiveness, small businesses were required to spend at least 75% of their PPP loan on payroll and employee benefit costs, and 25% on other allowable expenses within an eight-week period. Signed into law on June 5th, 2020, the Paycheck Protection Program Flexibility Act of 2020 (PPPFA) relaxes the original CARES Act requirements to make it easier for borrowers to achieve loan forgiveness.
Under the PPPFA, borrowers must spend at least 60% of their PPP loan on eligible payroll expenses and 40% or less on other authorized expenses including mortgage interest payments, rent, utility bills, and interest on debts incurred before February 15th, 2020. Eligible payroll costs include payments made on salary, wages, commissions, and tips up to $100,000 per employee. Other eligible payroll costs include state and local taxes assessed on compensation and certain costs related to employee health benefits and insurance premiums. It’s important to note that PPP funds cannot be used to pay independent contractors.
Covered Period Expansion
The PPPFA extends the covered period from 8 to 24 weeks. This makes it possible for small businesses to have their loan forgiven provided they spend PPP funds on eligible expenses within the 24 week period following deposit in their bank account or by December 31st, 2020, whichever occurs first. Borrowers that received their PPP loan prior to this change may elect to keep the original CARES Act covered period of 8 weeks.
Maintaining FTE Employees
In addition to extending the covered period, the PPPFA also addresses the original full-term equivalent (FTE) employee requirement. Under the CARES Act, in order to have the entire loan forgiven, borrowers cannot reduce the number of FTE employees during the covered period. This includes reducing the number of hours employees work per week. The loan amount eligible for forgiveness is reduced for each FTE employee not replaced in a pre-determined amount of time. The PPPFA extends the deadline for employers to restore FTE employees from June 30th to December 31st, 2020.
Borrowers will not have their loan forgiveness amount reduced if an FTE employee is fired for cause, resigns voluntarily, or requests a reduction in hours during the covered period.
PPPFA Safe Harbors
The PPPFA provides additional protections for employers that reduce the total number of FTE employees during the covered period. Borrowers will not experience a reduction in their loan forgiveness amount if they can prove they were not able to rehire former employees or fill available positions with qualified individuals. Small businesses may also qualify for loan forgiveness if they are able to provide documentation that shows they have not been able to return to the same level of business activity due to compliance with regulations and/or requirements issued by the U.S. Department of Health and Human Services, the Centers for Disease Control and Prevention, the Occupational Safety and Health Administration, or other governing agency.
PPP Loan Re-Payment
Prior to the PPPFA, PPP loan payments were deferred for six months to one year. However, it was determined this could result in recipients having to make payments before receiving their loan forgiveness decision. The PPPFA changes the deferral period to allow for forgiveness of the loan prior to repayment. No payments are due until the borrower receives the forgiveness amount. If the borrower fails to apply for forgiveness, they begin making payments ten months after the end of the covered period. Additionally, the PPPFA extends the maturity date from 2 to 5 years from the date the borrower applies for forgiveness.