Paycheck Protection Program (PPP) Flexibility Act

June 9, 2020
Paycheck Protection Program (PPP) Flexibility Act

On Friday, June 6th President Trump signed into law the Paycheck Protection Program (PPP) Flexibility Act (the "Act").  This bill, which had wide bipartisan support, relaxes some of the previous rules of the PPP.  The increased flexibility provided by this Act is designed to make it easier for more borrowers to qualify for full, or almost full, loan forgiveness.  A summary of the significant points of this Act is provided below:

• Covered period for loan forgiveness increased to 24 weeks from 8 weeks - Borrowers now have up to 24 weeks over which they can spend their PPP funds.  Existing PPP borrowers have the option to stick with the original 8-week covered period or they can choose to extend the covered period to 24 weeks.  New PPP borrowers will have a 24-week covered period, but in no cases, can the covered period extend beyond 12.31.20.

• Payroll costs threshold decreased to 60% from 75% - The portion of the PPP loan proceeds that must be used to pay eligible payroll costs was decreased to 60%.  The remaining 40% can be used to pay eligible nonpayroll costs which include:  rent, interest on mortgages/business loans and utilities.  On Monday, June 8th the SBA and US Treasury clarified in a joint statement that IF the borrower uses less than 60% of the PPP loan amount for eligible payroll costs during the forgiveness covered period, the borrower WILL continue to be eligible for partial loan forgiveness.

• Period to restore workforce levels and wages to pre-pandemic levels lengthened - Borrowers now have the full 24-week covered period to restore headcount and wages to the level that existed on 02.15.20 to be eligible for full loan forgiveness.  This must be done no later than 12.31.20, a change from the previous deadline of 06.30.20.

• Safe harbor for full-time equivalent (FTE) reductions - The Act provides two new exceptions that allow borrowers to potentially achieve full PPP loan forgiveness even if they do not restore their FTE headcount to their pre-pandemic FTE headcount that existed on 02.15.20.  These safe harbor exceptions allow borrowers to adjust their FTE headcount if they could not find qualified employees or were unable to restore business operations to 02.15.20 levels due to COVID-19 related operating restrictions. The first safe harbor exception applies if the borrower is unable to rehire individuals who were employees on 02.15.20 AND unable to hire similarly qualified individuals for unfilled positions by 12.31.20. The second safe harbor exception applies if the borrower is unable to return to the same level of business activity the business was operating at 02.15.20 due to compliance requirements or guidance issued between 03.01.20 and 12.31.20 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, related to worker OR customer safety requirements related to COVID-19. 

• Deferral of employer payroll taxes now permitted - The Act allows PPP borrowers to also delay the payment of the employer portion of payroll taxes (50% of the payment until the end of 2021 and the other 50% until the end of 2022).  Such deferral was previously prohibited under the CARES Act.

•  Loan maturity for new PPP loans increased to 5 years - All loans approved by the SBA on or after 06.05.20 will have a 5-year term rather than a 2-year term.  The interest rate remains at 1% for the unforgiven portion of the loan.

• Loan deferral period increased - The deferral period for payments of principal, interest and fees on PPP loans has been extended until the date the SBA remits the borrower's loan forgiveness amount to the lender.  Previously, the deferral period expired 6 months from the PPP funding date.

What's next?  The SBA/US Treasury have promised to promptly issue a modified PPP loan application and a modified PPP loan forgiveness application that incorporates these legislative changes.  Additional interpretive ruling/guidance as well as updated frequently asked questions are expected in the near-term.  The American Institute of CPAs is working to update their PPP loan forgiveness calculator to incorporate changes made by the PPP Flexibility Act.  We're hopeful this tool with be updated within 2 weeks and available for us to use in assisting clients with their PPP forgiveness applications.

There is still an additional $100 billion in PPP funds available.  All PPP loan applications must be approved by 06.30.20.  The program period was not extended by the Act.