President Trump signed the Paycheck Protection Program Flexibility Act (PPPFA) of 2020. This provides borrowers with greater flexibility in spending Paycheck Protection Program (PPP) funds without compromising forgiveness eligibility.
What does this Mean?
The PPPFA makes the following amendments to the PPP to provide relief to borrowers:
- Loan repayment terms — The PPPFA extends the minimum loan term for unforgiven PPP loans from two years to five years.
- Payroll costs vs. nonpayroll costs— For forgiveness eligibility, the PPPFA reduces the portion of PPP funds that must be spent on payroll costs from 75 percent to 60 percent and raises the nonpayroll cost limitation from 25 percent to 40 percent.
- Covered period extension — The PPPFA extends the covered period during which borrowers must spend the PPP funds to be eligible for forgiveness from eight weeks to 24 weeks from the date of origination of the loan.
- Payroll tax deferment — The PPPFA permits borrowers to defer payroll taxes without being penalized while remaining eligible for loan forgiveness.
- Extension of rehiring safe harbor — The PPPFA extends the rehiring safe harbor by six months to provide borrowers with additional time to restore payroll levels or rehire employees without facing a reduction in the amount of forgiveness for which they are eligible. The original date was June 30, 2020; the new date is December 31, 2020.
In addition to the provisions above, the PPPFA provides loan forgiveness eligibility exemptions for borrowers that are not able to rehire an employee or a replacement. There are also exemptions for loan forgiveness eligibility for borrowers that are not able to return to the same level of business due to complying with COVID-19-related orders or circumstances.
Borrowers should review the law carefully and speak to their lender should they have any questions. In addition, borrowers should direct any questions regarding their PPP loan to their lender.