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August 01, 2020

Paycheck Protection Program eases rules for loan forgiveness

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President Trump on June 5 signed into law the Paycheck Protection Program Flexibility Act, making it easier for recipients of Paycheck Protection Program loans to qualify for forgiveness.

PPP loan application being filled out

Now under the amended program, the covered period for loan forgiveness is extended from eight weeks after the date of loan disbursement to whichever is earlier: 24 weeks after the date of loan disbursement or Dec. 31, 2020. A borrower who has already received a PPP loan can continue to use the eight-week covered period if desired.

The amendment also reduced the amount needed to go to payroll costs to qualify for forgiveness. Now, 60% of loan proceeds must be spent on payroll costs, down from 75%. That means that forgivable nonpayroll expenses can be as high as 40% of spending, up from 25%. What qualifies as a forgivable expense has not changed.

Additionally, following the enactment of PPPFA, new borrowers will have five years to repay remaining balances on the loan instead of two years. For loans originated before June 5, the borrower and lender may agree to extend the term to five years. The interest rate of 1% was not changed.

The PPPFA makes other important changes, including the following:

  • Provides a safe harbor from reductions in loan forgiveness based on reductions in full-time–equivalent employees for borrowers who, in good faith, are able to document an inability to rehire individuals who were employees of the borrower on Feb. 15 and are unable to hire similarly qualified employees for unfilled positions by Dec. 31.
  • Offers a safe harbor from reductions in loan forgiveness based on reductions in full-time–equivalent employees for borrowers who, in good faith, are able to document that they were unable to return to the same level of business activity the business was operating at before Feb. 15 because of compliance with requirements or guidance issued between March 1 and Dec. 31 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 related to worker or customer safety requirements associated with COVID-19.
  • Extends the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that the Small Business Administration remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, to 10 months after the end of the borrower’s covered period or Dec. 31, 2021, whichever is sooner.
  • Eliminates the provision in the Coronavirus Aid, Relief, and Economic Security Act that prevents an employer from deferring employee payroll taxes as permitted under the CARES Act if the employer has a PPP loan forgiven.

Following the bill’s passage, U.S. Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza issued the following joint statement: “This bill will provide businesses with more time and flexibility to keep their employees on the payroll and ensure their continued operations as we safely reopen our country. We look forward to getting the American people back to work as quickly as possible.”

Despite this recent legislation, PPP borrowers are currently prohibited from claiming federal tax deductions that are normally fully deductible, including some rent and utility payments as well as wages and benefits paid to employees, for forgivable expenses paid with PPP funds. The Small Business Expense Protection Act (HR 6821/S 3612) would clarify that the receipt and forgiveness of coronavirus assistance through the PPP does not affect the tax deductibility of ordinary business expenses. The AVMA is advocating for this legislation and encourages members to visit the Congressional Advocacy Network to urge Congress to pass this legislation.


The AVMA has more information on COVID-19 loans for small businesses, available at "COVID-19 small business loans." In addition, the AVMA is offering a free webinar about recent updates to the Paycheck Protection Program, including provisions that give borrowers more time to use the money. Led by accountant Terry O’Neil, partner at Katz, Sapper & Miller’s Veterinary Services Group, the webinar is available on demand at "COVID-19: 7 key updates to PPP forgiveness."