On June 5, 2020, Congress passed the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”). The PPP Flexibility Act modifies certain terms of the PPP program under the CARES Act. The changes are significant and very beneficial to business owners. Here are some of the major points to take note of:
- Maturity Repayment Extension. The time to repay the loan has been extended from two years to five years; but, this extended maturity date only applies only to loans made after the bill is signed into law.
- Covered Period Extension. The “covered period” under the CARES Act was 8-weeks from the date of disbursement (which, pursuant to guidance given thereafter, was somewhat flexible) to spend the PPP money. However, the “covered period” for all PPP Loans has now been extended to 24 weeks from the date of the loan (but, in no case, beyond December 31, 2020). This change should greatly benefit those companies that continued to remain shut or very limited in their operations during the initial 8 week period by giving them much more time to spend the PPP money. This change should also help those that have been able to utilize the money to the greatest extent possible during the 8-week period as, pursuant to guidance issued after the PPP program launched, it became clear that, as a result of the 8-week calculation used for forgiveness and the 2.5x monthly payroll costs calculation used to determine the amount of the PPP loan, there was likely going to be some unforgiveable portion of the PPP loan. However, with the expanded time frame, I would expect almost all borrowers to receive 100% forgiveness on their PPP loan.
- Employee Rehiring Date Forgiveness. The PPP Flexibility Act changes the date by which employees that were laid off from February 15 – April 26, 2020 must be rehired by in order to achieve maximum forgiveness from June 30, 2020 to December 31, 2020. This allows companies significant more time to ramp up their business and will benefit those that have had no or significantly reduced operations during the period up to June 30, 2020.
- Exemption Based on Employee Availability. The PPP Flexibility Act also provides that loan forgiveness will not be impacted by a reduction in full-time employees (FTEs) under the following circumstances:
- The borrower can document (1) an inability to rehire individuals who were employees of the borrower on February 15, 2020, and (ii) an inability to hire qualified employees for unfilled positions on or before December 31, 2020, or
- The borrower can document an inability to return to the same level of business activity as it was operating at prior to February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
- Payroll to Nonpayroll Cost Ratio. Prior to the PPP Flexibility Act, the SBA published rules on the PPP loan that stated a borrower could only seek forgiveness to the extent that payroll costs represented 75% of the expenses incurred. To provide for a greater flexibility, the PPP Flexibility Act has reduced this ratio to provide for forgiveness to the extent that payroll costs represent only 60% of the expenses incurred. This allows borrowers to utilize more of the PPP loan for non-payroll costs.
- Extended Deferral Period. Payment of principal, interest and fees are deferred until forgiveness is remitted to the lender, only if the borrower applies for forgiveness within 10 months after the last day of the covered period. Thus, if you timely apply for forgiveness, the interest that would have accrued on the loan amount until that time will not have to be paid.
- Employer Payroll Taxes. Under the CARES Act, the law provided that borrowers that had PPP loans forgiven could either (1) seek relief from the PPP program or (2) seek relief from deferrals and credits to payroll taxes, but not both. The PPP Flexibility Act allows PPP borrowers can take advantage of delayed employer payroll taxes even if they are seeking forgiveness (i.e., they get their cake and eat it too).