Update on PPP: The Rules Have Changed—For the Better

Updated on June 11, 2021.

Covid-19 has turned the world—and the fitness industry—upside-down.

First there was the proverbial “pivot” to virtual, then the scramble and stress of applying for relief funding from the Small Business Administration’s Payment Protection Program (rounds 1 and 2). If you were among the fortunate who received funding, the next leap was wrapping your head around the details for proper use and tracking of the money.

On June 5, 2020, the Payment Protection Program Flexibility Act, which provides important  modifications for business owners, was signed into law. The SBA and the U.S. Treasury issued rules and guidance, a modified borrower application form (link not available at press time), and a modified loan forgiveness application implementing legislative amendments to the PPP. This may be the first glimmer of good news the industry has had in months.

According to the joint statement issued by SBA Administrator Jovita Carranza and U.S. Treasury Secretary Steven T. Mnuchin, the modifications will implement the following important changes (all points are quoted directly from their joint guidance).

1. Extend the covered period for loan forgiveness from 8 weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness. Borrowers who have already received PPP loans retain the option to use an 8-week covered period.
2. Lower the requirements that 75% of a borrower’s loan proceeds must be used for payroll costs and that 75% of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60% for each of these requirements. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.
3. Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time-equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020, and December 31, 2020, 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 related to COVID–19.
4. Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time-equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
5. Increase to 5 years the maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020.
6. Extend the deferral period for borrower payments of principal, interest and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).
7. In addition, the new rules will confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved.

Club Industry provided a helpful sponsored post from The Fitness CPA that was edited and modified for style that explains many of these points in more detail and plain language.

If you don’t understand the changes, IDEA recommends that you consult with your lender or your CPA for clarification.

The Payment Protection Program ended on May 31, 2021, though existing borrowers may be eligible for PPP loan forgiveness.