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When the House convenes next Wednesday, it is expected to vote on the Paycheck Protection Program Flexibility Act, a standalone bill that would, among other things, lengthen the time churches may spend the funds from their PPP loans. The bill would also eliminate the requirement that 75 percent of a loan’s proceeds must be spent on employee pay and benefits. The measure was originally proposed on May 15 in the House by representatives Dean Phillips (D., Minn.) and Chip Roy (R., Texas).  

Here are the proposed top-level changes to the PPP if the bill gets passed.

Expands forgiveness for expenses beyond the eight-week period.  

Currently, only the money that gets spent in eight weeks from the loan disbursement date–or the date of the first pay period after the loan is disbursed–is eligible for forgiveness. This bill would extend that forgiveness time frame from eight to 24 weeks.

Eliminates the requirement that non-payroll expenses be capped at 25 percent.

To get loans forgiven, churches are currently required to devote a minimum of 75 percent of the proceeds to payroll costs like salaries and benefits; just 25 percent may be spent on other allowable expenses such as rent, mortgage interest payments, and some utilities. But for churches that received their PPP loan while stay-at-home orders were in place, it often meant paying employees to stay home. Moreover, for some churches payroll simply isn’t the biggest expense. The bill eliminates that restriction, giving them greater flexibility with how to use their PPP funds.

Extends loan terms beyond two years. 

PPP loans are forgivable, but it will be the rare case in which a church will have her entire loan forgiven. This means the money must be repaid. And with an amortization period of two years–or 18 months should the borrower defer payments for six months–payments can become intense, even with a low, 1 percent interest rate. Here’s an example: The debt service on a loan worth $206,000 (the average loan size during the PPP’s first tranche) is $8,700 each month if the repayment period is 18 months. Typical SBA loans have far longer time horizons. It’s not clear what the repayment timeline would become under the new bill.

Extends the deadline to rehire furloughed or laid-off workers.

For loan forgiveness, churches with PPP money must rehire employees who’ve been let go as a result of the pandemic by June 30, 2020. The new bill extends that deadline to align with the expiration of enhanced unemployment insurance, which was created through the Cares Act and provides an additional $600 a week to unemployed workers. That’s set to expire on July 31, but the measure may get extended by lawmakers in the interim.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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