PAYCHECK PROTECTION PROGRAM FLEXIBILITY ACT OF 2020
With overwhelming bipartisan support in congress, President Trump
signed into law earlier today the Paycheck Protection Program Flexibility Act of 2020, which amends the Paycheck Protection Program under the CARES Act. The changes should help address some of the fundamental problems with the PPP loan program:
- The addition of a minimum loan term of 5 years for any amounts not forgiven under the Act. The minimum 2-year term established by the SBA was too aggressive for most borrowers. The act also provides that nothing prevents lenders and borrowers from mutually agreeing to modify the terms of existing PPP loans.
- The “covered period” with respect to forgiveness is now the earlier of 24 weeks from the date of loan origination or December 31, 2020, as opposed to 8 weeks and June 30, 2020, under the original Act. This will give borrowers significantly more time to spend their PPP funds, and provides some answer to employers who will not be able to bring employees back until later this year. If a borrower has already received its PPP loan, it may elect to use the original 8-week covered period.
- The covered period for a borrower’s good faith attempts to rehire employees is extended from the original February 15–June 30 time frame to February 15–December 31.
- The 75%/25% ratio limitations established by the SBA have been changed. Now at least 60% of your PPP loan must be spent on payroll costs, and up to 40% may be spent on non-payroll costs. All PPP borrowers to meet this 60% threshold to receive any forgiveness of the PPP loan.
- Forgiveness will now be determined without regard to a proportional reduction in full-time equivalent employees if a borrower can document in good faith: an inability to rehire individuals who were employees before February 15, 2020; AND an inability to hire similarly qualified employees on or before December 31, 2020; OR an inability to return to the same level of business activity as such business was operating at before February 15, 2020, as a result of compliance with COVID-19 standards for sanitation, social distancing, or any other worker or customer safety requirements.
- Payment of principal, interest and fees on all PPP loans are now deferred until the date on which the amount of forgiveness is determined.
- Borrowers must apply for forgiveness within 10 months of the last day of the covered period (i.e., December 31, 2020) or pay principal, interest and fees.
- PPP borrowers may delay payment of employer payroll taxes, where they were prohibited from doing so under the original Act if they sought forgiveness of their PPP loans.
A link to the Flexibility Act is provided
For more information on the PPP program and the forgiveness application process, please contact one of the members of our experienced COVID-19 Response Team listed below.