The Paycheck Protection Program Flexibility Act made significant changes to the PPP loans.
One of the biggest changes was to the eight-week forgiveness period. If you were assigned a PPP loan number or before June 5, 2020, you now have the option of taking 24 weeks to spend the funds instead of eight weeks.
Borrowers whose loan numbers were assigned after June 5 will automatically have a forgiveness period that is the shorter of:
- 24 weeks, or
- From the date of the loan to December 31, 2020.
One of the most frequent questions I have been receiving from my clients is, “should I use 8 weeks or 24 weeks for calculating loan forgiveness?”
8 weeks vs. 24 weeks
At first glance, having more time to spend your loan proceeds seems to make more sense. However, I would like to cover this week the advantages in both periods.
Advantages of using an 8-week forgiveness period
- Faster forgiveness. If you’re able to qualify for full loan forgiveness after eight weeks, you can have the forgiveness process wrapped up within the current calendar year. Extending your forgiveness period from eight to 24 weeks could lead to the loan forgiveness process extending into next year. If you apply for other loans or lines of credit during that time, you may have a hard time qualifying while the PPP forgiveness issue is up in the air.
- Easier to meet staffing requirements. One of the conditions for forgiveness is maintaining the number of employees on your payroll. Some small business owners may find it easier to maintain staffing levels for eight weeks than 24 weeks.
- Take advantage of current rules and interpretations. The rules and guidelines for calculating PPP loan forgiveness are changing quickly and often unpredictably. The regulations in effect at the time of your application apply to your loan. If you qualify for full forgiveness after eight weeks, you may be better off applying then. If you wait an additional 16 weeks, there’s no telling how the guidelines might change and whether you’ll still qualify.
Advantages of using a 24-week forgiveness period
- More of the loan can be spent on payroll costs. Under the old rules, you had to spend 75% of the loan on payroll costs. Under the new rules, that’s been reduced to just 60%. Under the prior rules, many had trouble rehiring employees. By giving employers more time to spend their funds on wages, payroll taxes, and benefits, more businesses should be able to have their loans forgiven.
- More time to plan. By taking advantage of the extended forgiveness period, business owners have more time to talk to their advisors and strategize ways to achieve maximum loan forgiveness.
If you have any questions regarding the period to select for the PPP forgiveness application, please call us to (305) 443-1068 to review both options.
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