PPP Flexibility Act
On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act) was signed into law. The PPP Flexibility Act revises some of the provisions of the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). These revisions are intended to provide greater flexibility for small businesses seeking relief through forgivable loans.
Additional rules and guidance, a revised loan application, and a revised loan forgiveness application are currently being developed by the Small Business Administration in consultation with U. S. Treasury Department. The SBA’s news release regarding the PPP Flexibility Act can be accessed here.
Below is a summary of the key changes made by the PPP Flexibility Act:
PPP Flexibility Act
Covered period of 8 weeks to spend PPP loan proceeds.
Covered period extended to 24 weeks for loans made after June 5, 2020. Existing borrowers may retain the original 8-week covered period or may use 24 weeks. The covered period may be either 8 weeks or 24 weeks; there is no option to choose another covered period. In no event may the covered period extend beyond December 31, 2020.
NOTE: Recipients of PPP loans before June 5, 2020 should carefully consider the impact of electing an 8-week or 24-week covered period. Extending the covered period may be helpful for businesses that have not been able to maintain FTEs during the 8-week period due to continued closure or reduced operations. However, it extends the period for maintaining FTEs which may reduce flexibility in making workforce reductions during the entire 24-week period. If all or a substantial amount of forgiveness can be obtained in an 8-week period, it might be preferable to complete the process sooner rather than later. Otherwise, it might be advantageous to wait until the end of the 24-week period and compare the 8-week and 24-week results. Remember, only recipients of loans before June 5, 2020 may elect an 8-week covered period.
Loan forgiveness is reduced if there is a reduction in FTEs or payroll costs during the covered period. A safe harbor from reductions in loan forgiveness was provided if an employee turns down an employer’s written offer to rehire.
Two additional safe harbor exceptions from reductions in loan forgiveness were added:
An employer is unable to rehire individuals who were employees on February 15, 2020 and unable to hire employees with similar qualifications by the end of the 24-week covered period.
An organization is unable to return to pre-February 15, 2020 business activity levels by the end of the 24-week covered period because of OSHA or CDC COVID-19 safety guidelines.
Applies retroactively to all PPP loans.
At least 75% of the loan proceeds must be spent on payroll costs and 75% of the loan forgiveness amount must be spent on payroll costs during the covered period.
At least 60% of the loan proceeds must be spent on payroll costs and 60% of the loan forgiveness amount must be spent on payroll costs. A borrower who spends less than 60% of the loan proceeds on payroll costs is still eligible for partial loan forgiveness. Applies retroactively to all PPP loans.
2-year loan term.
5-year term for new PPP loans.
Existing loans are governed by executed loan documents. Borrows would need to renegotiate with lenders for any change to an existing loan agreement.
No deadline for applying for loan forgiveness.
Borrowers must apply for forgiveness within 10 months of the end of the covered period. Applies retroactively to all PPP loans.
Payment of PPP loan principal, interest, and fees deferred for 6 months after end of covered period.
Payment of PPP loan principal, interest, and fees deferred to the date the SBA remits loan forgiveness to the lender. Borrowers who do not apply for loan forgiveness may defer loan payments for 10 months after end of covered period. Applies retroactively to all PPP loans.
PPP loan recipients were not eligible for delay of payroll tax remittance.
PPP loan recipients are eligible for delay of payroll tax remittance. Applies retroactively to all PPP loans.