The Paycheck Protection Flexibility Act was passed by Congress and signed by the President this week. This bill will greatly increase the likelihood that a borrower's PPP loan will be forgiven. The major components in the bill are:
Extension of covered period
The new Act
extends the 8-week covered period to 24 weeks
from the date of the loan's origination, or December 31, 2020, whichever comes earlier.
This means that borrowers will now be able to spend the entire PPP loan proceeds during this extended covered period and be forgiven as long as the amounts are spent for qualified purposes (payroll, rent, mortgage interest and utilities).
Borrowers who received the loan prior to the bill's date of enactment may still elect to use either the original 8-week covered period or the new 24-week period.
75% payroll cost expenditure requirement is reduced to 60%
This Act provides that borrowers
shall use at least 60%
of the loan amount for payroll costs. If this condition is not met, none of the loan is eligible for forgiveness.
Eliminating the FTE reduction provision if headcount is restored by 12/31/2020
This Act provides a longer period of time to restore workforce and new exceptions for FTE reduction provided if the borrower in good faith is able to document an inability to:
- rehire individuals who were employees on 2/15/2020;
- hire similarly qualified employees for unfilled positions by 12/31/2020;
- return to the same level of business activity as before 2/15/2020, due to compliance with sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 imposed by specified federal agencies.
Repayment period extended from two years to five years
Five years payback period
applies to all loans made on or after this bill's date of enactment. Existing PPP loans can have maturity extended if lender and borrower agree.
Interest rate remains at 1%
Deferral of employer's share of Social Security tax for the year of 2020
This bill allows employers who have had PPP loan forgiven to also defer all of its 2020 Social Security tax burden into 2021 and 2022, even if the PPP loan is forgiven prior to 12/31/2020.
Loan payments are deferred
Previously it had been a 6-month deferral. Now the payments of principal, interest and fees on any PPP loan is deferred until the SBA determines the amount of loan forgiveness.
There are still a few areas needing additional guidance.
We will continue to keep you updated as soon as more clarification becomes available.
As always, we are here to answer any questions you may have, please don't hesitate to contact one of us or reach out to our COVID-19 team at
. Take care and stay safe.
This newsletter is based on interpretation of the CARES Act and guidance released through June 3, 2020. There are areas of the Act where additional clarification from the Treasury and SBA is needed. Your judgement and interpretations of the Act may be necessary. This alert is provided for information purposes only and does not constitute accounting and tax advice. Please contact your MGGGY LLP accountant for additional assistance.
CC mgggy newsletter release 2020-16