PPP forgiveness would be more flexible if “HEALS” Act passes

Small businesses could have an easier time getting full forgiveness under the proposed legislation.

The Republican-driven Health, Economic Assistance, Liability Protection and Schools (HEALS) Act would make some major changes to how forgiveness works under the Paycheck Protection Program (PPP).

The proposed legislation would make a wider range of expenses eligible for forgiveness. It would also simplify the forgiveness application process and allow businesses to decide which period of time they want to cover with the loan.

It’s unlikely the bill will go through as-is — both Republicans and Democrats have raised objections. But here’s a look at what PPP loan forgiveness would look like if it passed today.

How forgiveness works now

Businesses that receive PPP loans can apply to have up to 100% of the loan cost forgiven by the government. To get full forgiveness, businesses must spend at least 60% of the loan on eligible payroll costs over an 8-week or 24-week period, depending on when the loan was issued.

If it doesn’t reach that 60% mark, businesses could still qualify for a reduced amount of forgiveness. But they are responsible for repaying the remaining balance over a two-year term at a 1% interest rate.

More expenses would count toward forgiveness

The HEALS Act would allow businesses to count the following types of costs toward that 60% required for full forgiveness.

Operations expenditures

This covers expenses associated with keeping your business up and running. Under the HEALS Act, you could count the following costs toward forgiveness:

  • Software
  • Cloud computing services
  • Product or service delivery
  • Payroll processing, payment or tracking
  • Human resources costs
  • Sales and billing functions expenses
  • Accounting costs
  • Supplies, inventory, records and expense tracking costs

Property damage costs

The HEALS Act would allow businesses that were damaged during the protests in June 2020 to count repair costs toward PPP forgiveness. If it wasn’t already covered, that is. If you have insurance or received another type of compensation, then it’s not eligible for forgiveness.

Supplier costs

Businesses that signed supplier contracts before February 15, 2020, would be able to count those costs toward PPP forgiveness as well, but only if the inventory you receive from the supplier is essential to your business.

It’s unclear how the Small Business Administration (SBA), which runs the PPP, would determine what supplies count as essential.

Worker protection expenditures

Businesses often have to undergo renovations and provide employees with protective personal equipment (PPE) to meet health and safety standards. These PPE and worker protection costs would count toward PPP forgiveness under the HEALS Act.

Renovation expenses

The following types of renovation costs would be covered under the HEALS Act.

  • Drive-through window installation
  • Air pressure or ventilation system installation — both indoor and outdoor
  • Physical barrier installations — like sneeze guards
  • Buying or renovating real estate to meet social distancing standards
  • Health screening capabilities, like temperature check stations

Any other expenses related to compliance with recommendations from the Department of Health and Human Services and Department of Labor would also count toward forgiveness.

PPE Expenses

Under the HEALS Act, you would also be able to count the following expenses for employee PPE toward PPP forgiveness.

  • N95 masks and other particle-filtering respirators
  • Surgical masks
  • Elastomeric respirators and cartridges
  • Gloves

Any other PPE recommended by the Department of Health and Human Services and Department of Labor would also count toward forgiveness.

Businesses can choose which weeks the PPP covers

Currently, businesses that took out loans before June 5th can count toward forgiveness their spending over eight weeks after receiving the loan. Those that applied that date or after can count costs incurred over 24 weeks after the loan. The SBA refers to this as the “covered period”.

The SBA also created an “alternative covered period”, which allows businesses with biweekly payrolls to start counting those 8 or 24 weeks on the next payday.

The HEALS Act would allow businesses to choose an eight-week period between the date they received the funds and December 31, 2020, that would be covered by forgiveness. This would be instead of the current 24-week covered period or alternative covered period.

It’s unclear if this is in addition to the 24-week period or as a replacement. The 24-week period was created after the CARES Act by the SBA and Treasury Department, and it’s not mentioned in the CARES Act or HEALS Act.

Simplified application for loans under $2 million

The HEALS Act would allow borrowers who took loans less than $2 million to apply for forgiveness without submitting any paperwork. How it works depends on how much you borrowed.

  • Loans under $150,000. Borrowers would only be required to sign a testament to good faith that they complied with federal requirements for forgiveness.
  • Loans from $150,001 to $2 million. These borrowers also don’t have to submit any documentation, but they’re required to fill out the regular PPP forgiveness application — which includes certifications and worksheets.

Businesses are still required to keep records of the expenses for three years. This includes the worksheets for PPP loans between $150,001 and $2 million.

During that time, they could be audited. And if an audit finds that some expenses aren’t backed up with documentation, the business would be required to repay them.

The SBA would also be required to submit a plan for PPP loan audits no more than 30 days after the HEALS Act passes.

PPP Second Draw forgiveness

If passed, the HEALS Act would establish a second round of SBA loans for some small businesses. Generally, forgiveness for PPP Second Draw loans works the same as it would for other PPP loans. The main difference is that it would cover expenses up until January 31, 2021, rather than December 31, 2020.

There’s a chance all of this might change. Stay on top of the news and be in touch with your lender to make sure you have the most accurate information.

But if you’re debating between applying for forgiveness now or later, it could be worth waiting to see what the next stimulus bill brings.