Congress recently agreed on updates to the Paycheck Protection Program (PPP) and the President signed the Paycheck Protection Program Flexibility Act (PPPFA). These updates are an effort to fix issues within the current program, which was conceived to help businesses during the economic crises spurred by the coronavirus pandemic. Now, business owners have more time and flexibility to spend the money provided under the PPP. The deadline to apply to receive a PPP loan remains June 30, 2020.
See below for the latest updates and enhancements documented under the new PPP Flexibility Act that restaurant owners need to know about:
- You have more time to use loan proceeds, and the ratios have changed:
| Old State | New State |
|---|---|
| PPP loan proceeds had to be used within eight weeks of loan origination, or by June 30, 2020, whichever came sooner. | You now have 24 weeks to use PPP loan proceeds, and you have until December 31, 2020 to do so. If you already used your loan proceeds in eight weeks, no worries – you can elect to still be bound by the eight-week rule in the original law. |
| Previously, 75% of loan proceeds had to be used for payroll, with the remaining 25% used for other allowable expenses. | Now, only 60% of loan proceeds need to be used on payroll, and the remaining 40% can be used on other allowable expenses (Note — the “allowable expenses” have not changed.) |
- For anyone struggling to rehire workers, you can worry less about the impact on loan forgiveness, but you will need to step up your documentation game:
| Old State | New State |
|---|---|
| There were no provisions in the CARES Act addressing an employer’s inability to hire back workers, and how that would impact the loan forgiveness formula. | Loan forgiveness will not be determined without regard to a proportional reduction in FTEs, if an eligible borrower can document:
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- If you haven’t been able to rehire workers, and you can document that your business has been forced to operate at a reduced capacity due to health and safety restrictions, your loan forgiveness eligibility will no longer be impacted:
| Old State | New State |
|---|---|
| There were no provisions in the CARES Act addressing the impact of forced reduced capacity on the ability to employ staff, and the impact this would have on PPP loan forgiveness. | Loan forgiveness will be determined without regard to a proportional reduction in FTEs, if an eligible borrower can document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19. Takeaway: Most restaurants will qualify for some form of relief under this addition to the CARES Act, but keep in mind the timeframe listed, the agencies referenced, and consult your accountant for their take on how this applies to your business. |
- Your repayment deferral period has likely just extended:
| Old State | New State |
|---|---|
| PPP loan repayments were deferred for six (6) months following loan origination. | PPP loan repayments are deferred until the amount of forgiveness determined under Section 1106 has been paid by the government to the lender. |
| Note: If you fail to apply for forgiveness, your first payment will be due October 31, 2021. |
Overall, the goal of PPPFA is to lighten the financial burden placed upon many small businesses during coronavirus. In a display of bipartisanship, politicians on both sides of the aisle aimed to listen and address the many concerns expressed by the small business community in relation to the original PPP. Under the updated program, restaurant owners will now have increased time and flexibility when it comes to how they would like to spend their PPP loan proceeds — allowing you to make the best financial decisions for your specific business.
Be sure to regularly visit our free resource section dedicated to advising restaurants on how to navigate the changing rules and regulations during the COVID-19 pandemic.
