Congress Extends Payroll Protection Program Loan Application Deadline
The main federal law providing financial and tax relief to business owners and others to help them cope with the coronavirus pandemic is the CARES law and, for most business owners, the main benefit of which they have as well as their employees under this law is the protection of the payroll. Program (the PPP).
As noted below, late last week President Trump signed an amendment to the PPP to make it available to business owners who have not yet received PPP loans.
First, however, for readers who are not already familiar with the current features of PPP as originally adopted and as previously modified, they are as follows.
■ The P3 provides loans to eligible business owners of up to $ 10,000 per employee to help cover the wages and salaries paid to those employees and, for P3 purposes, treats sole proprietors as employees.
■ As originally enacted and as amended, the CARES Act made $ 659 billion available for PPP loans, and nearly 4 million businesses received these loans.
■ The rules for determining whether a business is eligible for a PPP loan are complex, but the most basic rules are: the business must have fewer than 500 employees; the company’s equity must not exceed $ 15 million; and with few exceptions, the company’s average net income for the two years preceding its PPP application cannot exceed $ 5 million.
■ Companies must spend at least 60% of their PPP loans to cover employee salaries, but they can spend up to 40% on mortgage interest, rents and charges.
■ The maximum amount of any PPP loan will be the lesser of $ 10 million and 2.5 times the total average monthly payments for salary costs in the year preceding the date of application.
■ PPP loans can be made directly by the Federal Small Business Administration (SBA), but the SBA has also licensed private lenders – including, for example, most new
Hampshire Banks – to provide these loans.
■ In their PPP loan applications, business owners must certify that due to “the uncertainty of current economic conditions” they need the loans. Thus, companies that are doing well despite the pandemic cannot receive PPP loans.
■ Business owners who spend all of their PPP loan proceeds in accordance with PPP rules can treat these products as non-taxable grants and can request a loan forgiveness from their PPP lenders.
■ Notwithstanding any IRC rule to the contrary, P3 loan forgiveness will not trigger federal income tax.
Until now, the deadline for business owners who wanted to apply for P3 loans was June 30. However, until last week, $ 130 billion in PPP funds had not yet been loaned. But as of July 1, the Senate and House had voted to change the PPP loan application deadline to August 8, and late last week President Trump enacted the amendment.
It is likely that in the coming weeks, Congress will still make billions of additional dollars available to small businesses to enable them to survive the pandemic. But any New Hampshire business owner who has yet to apply for a P3 loan as it is currently in effect should do everything possible to meet the new August 8 deadline.
John Cunningham is a Concord tax and business lawyer and estate planner. He has published the drafting of operating agreements for limited liability companies and the maximization of interim deductions under Article 199A of the Tax Code. Both are the leading books in their fields. If you have any business or tax issues that you would like to cover in this column, call John at (603) 856-7172 or email him at [email protected]