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New law allows PPP loan forgiveness, more repayment time

RIO RANCHO, N.M. — The Paycheck Protection Program Flexibility Act, signed into law on June 5, changes the Paycheck Protection Program loan for its recipients.

On Wednesday, the New Mexico Economic Development Department hosted a webinar explaining these changes and providing an update on the Economic Injury Disaster Loan. The webinar can be found on the New Mexico Economic Development Department’s Youtube channel.

The PPP is a federal loan that provides cash-flow assistance to employers who maintain their payroll during this emergency, said Executive Director of the New Mexico Small Business Development Center Russel Wyrick.

The PPP loan has a 1 percent interest rate allowing six months after the loan is used before payments are required, according to the webinar.

Over $511 billion in loans have been processed nationally by more than 5,000 lenders to about 4.4 million businesses around the United States, said Alicia Keyes, cabinet secretary of New Mexico EDD.

In New Mexico, about $2.2 billion of the PPP have gone to over 2,000 businesses, she said.

“New Mexico needs small businesses to reopen and hire employees if we are going to reach a full recovery,” Keyes said.

There is roughly $129 billion left in funding for the PPP, said John Garcia, New Mexico District Director of the U.S. Small Business Administration (SBA).

When the PPP loan was introduced, the maturity of a loan could be for up to two years. When applicants apply now, the maturity of the loan is up to five years.

If applicants received a loan under a two-year maturity, they can renegotiate with their lender, Garcia said.

All changes made in the Paycheck Protection Program Flexibility Act will take effect on all PPP applicants apart from its loan maturity, according to the webinar. The new deadline to apply for the PPP is June 30.

The PPP offers 100 percent loan forgiveness as long as all requirements are met, according to the webinar. If all requirements are not met, applicants are still eligible for loan forgiveness up to 60 percent, Wyrick said.

It can take about five months for a loan to be forgiven, and borrowers must apply for loan forgiveness; it is not automatic, he said.

A requirement to qualify for loan forgiveness was that 75 percent of the loan had to be spent on payroll. With the PPPFA, that has been changed to 60 percent, Wyrick said.

This leaves 40 percent of the loan for business to pay for, mortgage, interest rent, insurance premiums and utilities, he said.

Originally, business had eight weeks to use the funds; this has been changed to 24 weeks. This is especially helpful for hospitality, gyms and retail, as many businesses remain under restrictions, Wyrick said.

Businesses were also required to rehire or fill all their positions by June 30; this has been changed to Dec. 31.

“The other interesting thing that we are finding out is that some of these employees don’t want to go back to work,” Garcia said.

He is advising employers to document employees’ decline to return to work through a letter.

This letter sent to an employee that declines to return to work and can be used as part of the business loan forgiveness application, Garcia said.

The same number of positions have to be hired back. If a business is able to demonstrate an inability to hire similarly qualified employees by Dec. 31, it can still receive forgiveness.

Under the PPP loan, businesses are required to return to the same level of business activity before Feb. 15. If a business is unable to return to that same level, it must document and demonstrate its inability before the February deadline to qualify for the 100 percent loan forgiveness.

The key to receiving loan forgiveness is to, “document, document, document,” said Shelley Brown, SBA lender relation specialist.

“This is not the time to operate your business in the shoebox-of-hope accounting system,” Wyrick said. “I make that joke a lot. It’s basically a business that has a shoebox, they throw all the receipts into it and at the end of the year, they just hope everything works out and their bookkeeper can solve it.”

Wyrick strongly suggests consulting with an accounting expert to calculate and document in order to receive PPP loan forgiveness.

He added that there is no charge to receive guidance from the SBDC. Its training and services are free for New Mexico businesses to utilize.

According to Roger C. Nagel the managing director of Nagel CPA LLC, PPP loan proceeds are not to deductible, even if the loan is forgiven.

“If you think about that, that means the proceeds that are forgiven will be fully taxed. Worse, they will be fully taxed at marginal rates, which might be higher than otherwise expected based on taxable income from operations,” Nagel said.

The PPP is still subject to change; consult the SBA website at sba.gov for updates.

Economic Injury Disaster Loan

The EIDL is an SBA loan, said Garcia. Over 7 million applications were submitted, he said.

Thus far, SBA has been able to process 735,000 applications totaling $57.4 billion, he said. This impacted over 5 million employees.

As of June 15, EIDL has opened again to small business and independent contractors, according to the webinar. In New Mexico, 3,370 EIDL loan applications have been approved for a total of $257 million, impacting 25,000 employees.

The EIDL is good for up to $2 million with no payments for 12 months.

There is a 3.75 percent interest rate for businesses and 2.75 percent interest rate for nonprofits.

The loan offers long-term payments for up to 30 years. The EIDL is meant to provide working capital, meaning it is meant to fund day-to-day operations.

According to the webinar, businesses cannot use the EIDL for:

  • Payment of dividends or bonuses;
  • Disbursements to owners, partners, officers, directors or stockholders;
  • Expansion of facilities or acquisition of fixed assets;
  • Repair or replacement of physical damages;
  • Refinancing of long-term debt; or
  • Paying down — including regular installment payments — or paying off loans provided or owned by another federal agency.

Businesses can apply to EIDL and the PPP on the SBA website.

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