Here’s a quick reminder of the details of the Paycheck Protection Program Flexibility Act of 2020. This was signed into law earlier this month and amended the Paycheck Protection Program (PPP) to give borrowers more freedom in how and when loan funds are spent while retaining the possibility of full forgiveness.
Here are a few specifics of this act that would be good for all readers to know:
- It gives borrowers more time to spend loan funds and still obtain forgiveness than the initial PPP.
- Borrowers now have 24 weeks to spend loan proceeds, up from 8 weeks.
- It reduces mandatory payroll spending from 75% to 60%.
- Two new exceptions let borrowers obtain full forgiveness even without fully restoring their workforce.
- Changes made by the June act have been incorporated in new forgiveness applications released by the SBA.
- The time to pay off the loan has been extended to five years from the original two.
- Businesses can delay paying payroll taxes even if they took a PPP loan.
Under previous PPP loan guidance, borrowers had eight weeks from the time they received the first loan installment to spend the funds. This new act lets them extend that period to 24 weeks (but not beyond Dec. 31, 2020). They also have the option to keep the original eight-week spending period if they already had their loan before the enactment of the Act. Under the new timeline, full forgiveness is still possible.
The original PPP loan guidelines mandated that 75% of any forgiven amount had to be spent on payroll costs. The Flexibility Act reduces required payroll expenditures to 60% of the loan amount with up to 40% of the loan amount used for mortgage interest, rent, or utility payments to obtain full loan forgiveness of that amount. Additionally, part of the loan can be forgiven provided the borrower maintains the same 60/40 ratio for the amount forgiven. This change reflects complaints from many businesses that their payroll costs went down as employees were laid off but fixed costs like rent did not.
Two new exceptions let borrowers achieve full forgiveness even if they don’t fully restore their workforce. These are in addition to previous guidance that lets companies exclude workers who turned down good-faith offers of re-employment. Borrowers can now also reduce workforce requirements based on the inability to find qualified employees or if they were unable to restore operations to Feb. 15, 2020, levels due to COVID-19 restrictions.
The PPP loan repayment period has been extended to five years from the original two while retaining the original 1% interest rate. This gives borrowers more time to pay off the unforgiven portion of their loan.
The payment deferment period (principal, interest, fees) is now extended from six months after the end of the covered period to the date the SBA sends the borrower’s loan forgiveness amount to the lender. If the borrower does not apply for forgiveness, the deferral period lasts until 10 months after the end of the covered period according to guidance issued by the SBA on June 8, 2020.
Finally, the PPP Flexibility Act of 2020 lets businesses that took a PPP loan also delay paying their payroll taxes. This was not allowed under the original CARES Act.
Our business lawyers at Bashore Green are available to answer questions you may have about how the PPP impacts you and your business. Feel free to contact us with any questions.