When the Paycheck Protection Program (PPP) was introduced in the CARES Act on March 27, legislators and business owners alike could have never imagined the longevity and full impact of the COVID-19 crisis. Since the Act was signed, full industries have been forced to shut down, an additional $484 billion was poured into its relief programs, and many areas of the country find themselves in their third month of quarantine.
In hindsight, the original version of the PPP fell far short of covering the number of businesses that needed relief and providing them with realistic parameters to achieve the program’s coveted loan forgiveness. The PPP Flexibility Act, signed into law on June 5, corrected some of these deficiencies and created more parity for PPP borrowers in metropolitan areas like New York City.
What this Means for New York Contractors
New York construction companies were among those who had the most to lose if the original PPP guidelines did not change. Fortunately, the PPP Flexibility Act addressed two of their greatest areas of concern:
- The new Act extended the covered period – during which loan proceeds must be spent to achieve maximum loan forgiveness – from 8 weeks to the earlier of 24 weeks or December 31, 2020. This was especially significant for contractors with “non-essential” projects that were only allowed to begin reopening in Long Island and the Lower Hudson Valley on May 27 and New York City on June 8, leaving little opportunity to spend loan funds in the immediate 8 weeks after the loan was received.
- Another major concern facing PPP borrowers in the New York City area was the requirement to use at least 75% of the loan funds on cash compensation and health and retirement benefits (i.e., payroll costs). Given the higher-than-average rent and mortgage rates in this part of the country, these businesses were at a huge disadvantage, especially as payroll costs declined during the shutdown. The PPP Flexibility Act changed that ratio to 60% payroll costs and 40% non-payroll costs, creating more flexibility for businesses in hard-hit states like New York to achieve loan forgiveness.
Other Highlights of the PPP Flexibility Act
While the extension of the covered period and the shift in payroll to non-payroll ratio were two of the most anticipated changes, the PPP Flexibility Act made other significant improvements to benefit borrowers:
- Employers now have until December 31, 2020 (formerly June 30, 2020) to restore reductions in workforce or pay that would reduce the amount of loan forgiveness.
- Borrowers who receive loan forgiveness may defer paying the employer’s portion of FICA for the remainder of 2020.
- Borrowers who apply for a PPP loan after June 5 will have 5 years (formerly 2 years) to repay the loan if they are not seeking loan forgiveness. For loans taken out before June 5, borrowers may work with their lenders to adjust the repayment term up to 5 years.
- The new Act extended the start of loan repayment to 10 months after the end of the covered period for borrowers not seeking loan forgiveness. For borrowers seeking loan forgiveness, the repayment date will not start until 6 months after the covered period, until they achieve loan forgiveness.
The unprecedented nature of the COVID-19 crisis calls for unprecedented relief, and these enhancements go a long way to providing it through the PPP.
If the original guidelines and their implications on your New York area business caused you to hesitate to apply for a PPP loan, another piece of good news is that there is still time. As of June 8, $130 billion of the PPP funding was still available. Businesses with 500 or fewer employees, or that can meet alternative sizing tests, can apply through a participating lender until August 8, 2020.
This article was originally published in the Summer 2020 Issue of the Long Island Contractors’ Association Road Warriors Magazine.