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- PPPFA states at least 60% of PPP funding must be spent on payroll or payroll-related expenses
- Entirety of the loan will not be eligible for forgiveness if 60% threshold is not met
- Rubio (R-FL) said not to be comfortable with “cliff” effect; pushing SBA for guidance
- Industry experts anticipate 30 new FAQs from the SBA regarding PPP changes
The initial excitement surrounding the Paycheck Protection Program Flexibility Act (PPPFA) passing unanimously in the Senate has begun to dampen in the business community as many dive into the details (or lack thereof) of the bill. Among many, one major change within the bill has emerged as a potential pitfall for business owners and has earned itself an ominous nickname in the process: The 60% Cliff.
The 60% Cliff refers to the change in the PPP that governed how business owners were required to spend the funding received under the PPP. Originally, PPP funding recipients had to spend at most 25% of the funds received on non-payroll related costs, such as rent, utilities, and other identified expenses. However, the SBA did not stipulate how much of the borrowed proceeds needed to be spent, just the amount that would be forgiven.
As Tony Nitti (Forbes) explains: “If you borrowed $100,000 and spent $50,000 on payroll costs and $30,000 on non-payroll costs, your total forgivable costs would be limited to $66,667 ($50,000/75%), but you’d still get that $66,667 of forgiveness.”
This, however, has changed, and perhaps not for the better.
The PPPFA creates The 60% Cliff, which states that, if PPP borrowers do not spend at least 60% of the PPP funds on payroll, none of the loan would be forgiven. To carry forward the above example, if a business received $100,000 in PPP funding and only spent $50,000 of the funds on payroll, none of the PPP funding would be subject to forgiveness and the business, instead, would have just incurred a $100,000 loan.
There has already been push back on this aspect of the bill, most notably from Sen Marco Rubio (R-FL), who has asked for the SBA to issue additional guidance to soften the potential blow of this requirement on the small business community. However, ask and you shall receive, Senator, as his request for updated guidance comes as the SBA is allegedly poised to release 30 additional FAQs to their PPP Guidance, which have been known in the past to inject confusion and chaos into the business community.
As the madness continues to unfold and as more details are discovered within the PPPFA bill, visit the DSJ COVID-19 Information Center frequently to get the latest on how your business will be affected.
Sincerely,
Stephen Jahelka
Chief Business Officer, Disaster Relief Consultant
Contact:
516-541-6549 | Email