New Changes in the Paycheck Protection Program
Updated as of July 13, 2020
New changes have come to the Paycheck Protection Program (PPP) that will help family child care providers. The changes are the result of a new law passed last week by Congress as an amendment to the CARES Act passed last March.
Recent changes
Providers can now:
Take up to 24 weeks to spend the PPP money, up from 8 weeks.
Spend up to 40% of the PPP money on non-payroll expenses, which include utilities (gas, electric, water, Internet, telephone), mortgage loan interest and rent. The previous law required providers to spend no more than 25% on non-payroll expenses.
Rehire employees up until December 31, 2020 with no penalty if they can’t hire back staff before then because of COVID-19.
Take up to five years to repay any money not spent, instead of the previous two years. Any money not spent on allowable expenses will become a 1% interest loan.
Here are some comments about these recent changes:
Providers can still spend the PPP money before the end of the 24-week period and apply for loan forgiveness early. In fact, it makes sense to spend the money as quickly as possible to avoid a slow-down of the processing of loan forgiveness applications at the end of the year.
Providers can now spend a minimum of 60% of the PPP money on payroll (75% under the old law).
Under the old law, some providers who had employees were in a bind. They weren’t ready to rehire their employee within the old 8-week deadline and were faced with having to return unspent money. Now, they have up to 24 weeks to rehire them. Employees who were reluctant to return to work because they made more money on unemployment may now be more likely to return to work because their unemployment benefits are likely to run out before the 24 weeks are up.
Under the new law, providers can spend up to 40% of the PPP money on non-payroll expenses over 24 months. Providers should have an easier time using the money for these purposes with 24 months to spend it.
The PPP money is still forgivable and is not taxable income on 2020 taxes. Any money spent using PPP money cannot be claimed as a business deduction on 2020 taxes.
Additional comments
There is still additional money available in the PPP program! You can apply through your local bank or credit union, or through these online companies:
BlueVine - https://www.bluevine.com/
Fundera – www.fundera.com/ppp
Funding Circle – www.fundingcircle.com/us
Kabbage – www.kabbage.com/paycheck-protection-program-loans
Here's a recording of a webinar on how to fill out the PPP loan application form.
Here's the power point slides from this webinar.
Family child care providers are entitled to use the PPP money to pay themselves payroll. I have heard from some providers that their bank has told them that payroll can only be for employees, not for themselves. This is not true. You can apply for PPP money for your own payroll based on your 2019 Schedule C profit, found on line 31. If you didn’t show a profit in 2019, you are not eligible for the PPP forgivable loan. See my article on PPP for more information on how to calculate the maximum amount of money you can request.
You can still apply and use PPP money for your own payroll even if you are still caring for children and are earning as much as you did before the COVID-19 pandemic.
If you don’t spend all the money on allowable expenses during the 24 weeks, you can either return the money or keep it. If you keep it, you will have to pay it back over 5 years (previously 2 years) at a 1% interest loan.
Unemployment
There are some unanswered questions about how receiving PPP funds will affect your ability to receive unemployment benefits. Each state has its own rules about how much you can earn each week and still be eligible for unemployment benefits. Some states may require you to report PPP money as income. It's not clear if you can report all the PPP money as income in one week or if you must spread the money over a number of weeks. In any case, you can't spend PPP money in the same week you are receiving unemployment. It's not clear if you can wait to spend the PPP money until you no longer qualify for unemployment.
Other Questions
The Small Business Administration (SBA) may issue guidance in the future that may further clarify rules regarding this program.
The SBA has issued a PPP Loan Forgiveness Application form that I will write about in the near future.
Economic Injury Disaster Loan (EIDL)
I have been hearing from a number of providers that they have been offered tens of thousands of dollars under the EIDL program. If you accept this money, it is a 3.75% interest loan that must be paid back over 30 years. Originally the EIDL program was a $10,000 forgivable loan. Because of the high demand for the program, it was quickly reduced to a $1,000 forgivable loan for each employee, with a provider able to count herself as an employee.
Some providers are now receiving offers of large amounts of loans even though they didn’t request them. I’m guessing that the EIDL program is now trying to push out as much money as they can in the form of loans to stimulate the economy. Providers should be careful about accepting these loan offers unless they can afford to pay them back.
Note: If you got the $1,000 EIDL "advance" this is a forgivable loan. But, it must be subtracted from what you get from a PPP forgivable loan. If you borrow money from EIDL at the 3.75% interest amount, this is not subtracted from a PPP forgivable loan.
As I learn more about the PPP and EIDL programs, I will write about them.
Tom Copeland – www.tomcopelandblog.com
Image credit: Small Business Administration
