There’s good news for contractors looking to take advantage of the SBA’s Paycheck Protection Program (PPP): Forgiveness is easier. And contrary to popular rumor, the fund is alive and well. At the time of this writing, there’s approximately $100 billion in the fund. The US Treasury announced the changes, “Revisions to First Interim Final Rule,” in early June 2020. It’s now a friendlier program for keeping small businesses afloat. Here are the need-to-knows if you’re looking to protect your construction company with a PPP loan. These changes have made this program an attractive option for contractors looking for ways to improve their cash flow.
This is an update to Levelset’s SBA Paycheck Protection Loans article, which includes information on how to apply, and who qualifies.
Visit the Coronavirus Help Center for access to more resources to protect your construction business and improve cash flow.
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PPP payroll percentages reduced to 60%
When the PPP first rolled out, it required all borrowers to use 75% of the loan for payroll. If your construction company met that threshold, you’d qualify for PPP loan forgiveness. In many places crews weren’t allowed to work, though, making it hard to spend that much cash on payroll.
The payroll percentage threshold for qualifying for forgiveness is now lower, at 60%. This means contractors can spend more of their PPP for other things to keep the business afloat.
This doesn’t mean that you’ll be responsible for the whole loan if you don’t spend 60% on payroll. You’ll be accountable for the percentage that you didn’t hit.
For example, borrowers with a $100,000 loan might spend 50% of it on payroll. They’ll be accountable for 10% (or $10,000) of the loan—which is still an attractive option at the 1% interest rate.
The time frame for spending extended to 24 weeks
Construction companies originally had eight weeks to spend their PPP fund on qualifying expenses. The plan was to kickstart the economy quickly. But, especially for contractors and material suppliers, it was hard to spend 75% of their loan on payroll in eight weeks.
The spending time frame is now 24 weeks. This is a much friendlier window for businesses that were unable to open completely. This is good news for construction business working with small crews.
Borrowers that already took a PPP loan should contact their lender. They can request an extension to their loan’s spending requirements under the new rules.
Hire-back deadline moved to December 31
The PPP originally required businesses to hire back all their full-time staff by June 31, 2020. The only exception to this was if your crew was unwilling to take their job back.
Under these changes, the hire-back requirements are more flexible. Construction companies have until December 31, 2020, to hire their staff back. You’ll still qualify for forgiveness if you’re unable to fill the positions. If you can’t find an architect, for example, your loan forgiveness is still intact.
This means if your crew has a specialized employee whose hard to replace, you may be okay. If you can’t replace specialized employees, you’re still inline for forgiveness.
PPP application deadline extension
The original application deadline for the program was June 31, 2020. This deadline wasn’t much of an issue, as a lot of construction companies stopped applying for the PPP. The rumor that the PPP well had run dry steered firms away.
There were staffing issues as well. Construction company leaders were gunshy about filing the SBA PPP paperwork. It’s the type of work usually reserved for office managers.
The PPP fund is still alive and well, with nearly $100 billion still available to qualifying businesses. The extended application deadline is now December 31, 2020.
If your construction company is still looking for the loan to keep the doors open, you still have time to apply. As long as there is still money in the fund, you’ll have an extra six months to apply.
It’s also a very easy and straightforward application process. Call your local SBA loan lender to find out what you’ll need to bring with you.
Repayment deadline lengthened to 5 years
The previous PPP required loan repayment (if applicable) within two years from receipt. The extended deadline is now five years, as long as you fill out the correct forms and have “mutual agreement” with the lender. You also need to file them within ten months of the 24-week spending window.
This is one of the most significant changes to the PPP. And it’s particularly beneficial for those that won’t qualify for full forgiveness.
Defer payroll taxes and apply for PPP loan
Construction businesses had to make a choice under the original PPP requirements. They had to choose between deferring payroll taxes or applying for a PPP loan. The new guidelines allow for both—a big help to crews and suppliers with large staffing numbers.
Big changes can make big differences
The PPP’s designed to be a helpful program and keep the economy rolling during these difficult times. It’s now easier to apply for these loans and qualify for forgiveness. The US Treasury also released a shorter 5-page forgiveness application to coincide with the new rules.
Construction companies, contractors, and suppliers now have even more help with troublesome cash flow. They may be able to keep the doors open by taking advantage of these friendlier terms.