On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA) in an attempt to address many concerns expressed by the small business community around the
Paycheck Protection Program
(PPP) aimed at providing COVID-19 relief. The new law resulted in the following changes to the Paycheck Protection Program rules:
1. PPPFA Changes Amount of Loan Needed for Payroll to 60%
The PPPFA reduces the amount of the loan needed to be spent on payroll from 75% to 60%, thus increasing the amount of funds available for other expenses from 25% to 40%.
2. PPPFA Extends Time Period to Use Funds From 8 to 24 weeks
The PPPFA extended the time period to spend the loan funds to 24 weeks. Businesses now have the flexibility to spend the PPP funds when they like for the remainder of the year.
Note: the PPPFA does not require businesses to wait for 24 weeks to apply for forgiveness, businesses can still apply for forgiveness after eight weeks if they prefer.
3. PPPFA Pushes Back a June 30 Deadline to Rehire Workers to December 31, 2020
Previously, the PPP required that all workers had to be rehired by June 30, 2020, in order for their salaries to count towards forgiveness. Under the new law, businesses now have until December 31, 2020, to rehire workers in order for their salaries to count towards forgiveness.
4. PPPFA Eases Rehire Requirements
The new law makes two changes to the rehiring requirements.
- It extends the rehire date to December 31, 2020.
- It adds additional exceptions for a reduced head count.
The law states a business can still receive forgiveness on payroll amounts if it:
- Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
- Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
- Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.
5. PPPFA Extends the Repayment Term From Two (2) Years to Five (5)
The new law eases repayment terms in the event loans or portions of them are not forgiven. A business will now have five years at 1% interest to repay the loan. Further, the first payment will be deferred for six months after the SBA makes a determination on forgiveness. Under current regulations a bank has 60 days to make a forgiveness determination and the SBA an additional 90 days.
In addition, the PPPFA also allows borrowers to take advantage of the CARES Act provision allowing deferment of the employer’s payroll taxes for Social Security. Previously, PPP did not permit deferment of these taxes on the forgivable portion of the loan.
Contact your PPP lender if you have questions about how the PPPFA affects you.
