Since it was signed into law, the PPP has become a widely used program for employers across the country. However, some of the requirements of the PPP were considered overly restrictive, especially for smaller employers.
On June 5, 2020 the Paycheck Protection Program Flexibility Act of 2020
(the “Act”), was signed into law. The Act relaxes some of the requirements of the PPP previously set forth under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. Most notably, the window for spending PPP funds has been expanded from eight weeks to twenty-four weeks, and companies can now spend a higher proportion of the PPP funds on non-payroll costs.
The following Q&A addresses some of the major changes to the PPP under the Act:
Does the Act change how I can use the PPP loan amount?
Yes. Previously, in order to take advantage of the loan forgiveness benefit under the PPP, borrowers were required to use at least 75% of the loan amount on payroll costs. The Act lowers that requirement to 60%, and permits up to 40% to be used on eligible non-payroll costs (such as rent or utilities).
Does the Act change the 8-week limitation on PPP loan forgiveness?
Yes. Previously, the PPP was intended to cover costs for an 8-week period through June 30. The Act now expands that period to 24 weeks following the date of origination up to December 31, 2020. Note that borrowers who were granted a loan prior to the Act may elect to stay under the prior 8-week period.
Does the Act give more time to rehire employees and restore wages or salaries?
Yes, the Act provides employers with an additional six months to rehire employees and restore wages and salaries. Previously, employers could avoid reductions to the forgivable amount of their loan by eliminating reductions in the number of full time equivalent employees (“FTE”) and/or reductions made to employee salary and wages by June 30, 2020. That date has been extended to December 31, 2020.
If I am unable to hire back my employees because either the employees refused my offer to rehire them or because I am following health and safety guidelines, will I still be subject to a reduction in the amount of my loan forgiveness?
It depends. The Act now creates a safe harbor – or an exception – to reductions based on reduced FTE for borrowers who, in good faith, can document:
- an inability to rehire individuals who were employees of the borrower on February 15, 2020; and (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; OR
- an inability to return to the same level of business activity as compared to business activity prior to February 15, 2020, due to compliance with requirements or guidance by the CDC, HHS or OSHA by December 31, 2020 (e.g. social distancing. etc.).
Can I defer payments on a PPP loan?
Yes, but the time period will depend on your specific loan. Previously, loan payments could be deferred for covered borrowers for 6 months. Now, the loan can be deferred “until the date on which the amount of forgiveness determined under section 1106 of the CARES Act [‘Loan Forgiveness’] is remitted to the lender.” In other words, a borrower does not need to make payments on the loan until after the amount eligible for forgiveness is determined and paid to the lender.
If I get my loans forgiven, can I still defer payroll taxes?
Yes. The Act permits borrowers who have had their loans forgiven to access payroll tax deferments.
Are there any changes to the general terms of the loan?
Yes. Under the Act, the maturity date of PPP loans is now 5 years, instead of 2 years.
Additionally, a borrower who fails to apply for loan forgiveness within 10 months of the last day of the covered period (i.e., 24 weeks after the date of origination, up to December 31, 2020) will not be required to make payments on the loan until, at the earliest, 10 months after the last day of the covered period.
NOTE: We expect that the Small Business Administration will be publishing additional guidelines and rules under the Act. We will be tracking these developments as they occur.