COVID-19 Summary of Paycheck Protection Flexibility Act

Overview

On June 3, 2020, the U.S. Senate passed  H.R.7010 - Paycheck Protection Program Flexibility Act of 2020 by voice vote.  The bill had passed the U.S. House on May 28 nearly unanimously. The Act, as its name suggests, provides greater flexibility to employers on many aspects of the PPP Loans.

While we are awaiting guidance from the Department of the Treasury and the Small Business Administration to provide regulations with respect to the Act, it is pretty clear and we can assume that the way we read it now is primarily what their guidance will be.

Following is a summary of the key changes. Many of them will be of great importance to you as they affect how you spend the money received from the PPP loan and much more.

 

Deadline to Use the Loan Proceeds:

The Act extends the “covered period” with respect to loan forgiveness from the original 8 week period after the loan is disbursed to the earlier of 24 weeks after the loan is disbursed or December 31, 2020.

 

Forgivable Uses of the Loan Proceeds:

The Act raises the cap on the amount of forgivable loan proceeds that borrowers may use on non-payroll expenses from 25% to 40%.  The Act does not affect the PPP’s existing restrictions on borrowers’ use of the loan proceeds to eligible expenses: payroll and benefits; interest (but not principal) on mortgages or other existing debt; rent; and utilities.

 

Use 60% on Payroll Or Nothing is Forgiven:

It is very important to note that while the payroll expenditure requirement drops to 60% from 75%, it is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Before this Act, a borrower was just required to reduce the amount eligible for forgiveness if less than 75% of eligible funds were used for payroll costs, but forgiveness wasn’t eliminated if the 75% threshold isn’t met.

Important Update: On Thursday 06-11-2020 the SBA amended its rules and provided Updated SBA Rules to allow partial loan forgiveness. As such, employers using less than 60% on payroll will be forgiven based on the percentage used on payroll. For example, employers who received a 100K loan and used only 54,000 (54 percent) on payroll expenses will be able to receive forgiveness of 90K, as 54,000/.6 =90K.

Payroll Tax Deferral:

The Act lifts the ban on borrowers whose loans were partially or completely forgiven from deferring payment of payroll taxes.  The payroll tax deferral is now open to all PPP borrowers even after they have received forgiveness of their PPP loan.

 

Safe Harbor for Rehiring Workers:

Loan forgiveness under the PPP remains subject to reduction in proportion to any reduction in a borrower’s full-time equivalent employees (“FTEs”) against prior staffing level benchmarks.  The Act extends the PPP’s existing safe harbor deadline to December 31, 2020: borrowers who furloughed or laid-off workers will not be subject to a loan forgiveness reduction due to reduced FTE count as long as they restore their FTEs by the deadline.

 

New Exemptions from Rehiring Workers:

The Act also adds two exemptions to the PPP’s loan forgiveness reduction penalties. Firstly, the forgiveness amount will not be reduced due to a reduced FTE count if the borrower can document that they attempted, but were unable, to rehire individuals who had been employees on February 15, 2020 and have been unable to hire “similarly qualified employees” before December 31, 2020.  Secondly, the forgiveness will not be reduced due to a reduced FTE count if the borrower, in good faith, can document an inability to return to the “same level of business activity” as prior to February 15, 2020, due to sanitation, social distancing, and worker or customer safety requirements.

 

Loan Maturity Date:

The Act extends the maturity date of the PPP loans (i.e. any portion of a PPP loan that is not forgiven) from 2 years to 5 years.  This provision of the Act only affects borrowers whose PPP loans are disbursed after its enactment.  With respect to already existing PPP loans, the Act states specifically that nothing in the Act will “prohibit lenders and borrowers from mutually agreeing to modify the maturity terms of a covered loan.”

 

The Covid-19 Dashboard:

As we have advised in our article on COVID-19 Loan forgiveness application tools, we are continuing to monitor any regulatory updates and we will modify all our tools to reflect any changes which affect the loan forgiveness application.

We encourage you to utilize our COVID-19 Dashboard where you can view and manage many elements of COVID-19 related items, as well as have all the loan forgiveness related information easily and intuitively laid out for you.

 

Links & Resources:

Following are links from government agencies you might find helpful

EZ Forgiveness Application

Full Forgiveness Application

Updated SBA Rules

 

 

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