Congress passed the Paycheck Protection Program (PPP) Flexibility Act of 2020 (Flexibility Act), on June 3, and President Trump signed it into law early on June 5, 2020. The Flexibility Act updates the PPP, which was enacted by the CARES Act and implemented by the SBA, to extend the program and add more flexibility
The Act extends the time period for PPP borrowers to apply for loan forgiveness up to 10 months from the date their covered period ends. If the borrower does not apply for loan forgiveness at that time, the loan will begin amortizing.
The Flexibility Act extends the PPP program through December 31, 2020. It also changes the SBA’s requirement that 75% of the loan be spent on payroll expenses in order to seek full loan forgiveness, setting that requirement to only 60%.
Under the CARES Act, PPP borrowers were required to maintain or rehire employees who were paid at least 75% of the salary or wages they received in the last fiscal quarter before applying for a PPP loan. The PPP borrower had to meet this benchmark prior to June 30, 2020. The Flexibility Act extended that deadline to December 31, 2020.
The Flexibility Act also created safe harbors related to this 75% threshold. PPP borrowers who made good faith efforts but were unable to:
- rehire an individual that was laid off after Feb. 15, 2020
- hire similarly qualified employees for unfilled positions, or
- return to the same level of business activity it was at before Feb. 15 due to compliance with U.S. Department of Health and Human Services (HHS), Centers for Disease Control and Prevention (CDC) or Occupational Safety and Health Administration (OSHA) guidance,
WILL be eligible for full loan forgiveness. They will NOT be required to accept a reduced loan forgiveness amount.
New. On June 8, 2020, the SBA and the Treasury Department issued a joint statement clarifying the loan forgiveness rules for borrowers who do not spend 60% of the PPP loan on payroll expenses and who do not qualify for the safe harbors outlined above.
New. If a borrower uses less than 60% of the loan amount for payroll costs during the covered period (24 weeks or 8 weeks, at the borrower’s election), the borrower will still be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs during the covered period.
New. For instance, if a borrower received a $100,000 PPP loan and used only 50% of the funds ($50,000) towards payroll costs during the covered period, then the forgivable amount would be 83,333 (of which 60% is $50,000).
New. The amount of PPP loan forgiven is excluded from the CAT in OR and excluded from B&O tax in WA. There are several PPP loan forgiveness calculators available online – this is not a calculation you need to do by hand.
The CARES Act provided that a PPP borrower must spend its loan proceeds within an eight-week covered period following the PPP loan disbursement date. The Paycheck Protection Program Flexibility Act extends that period from eight weeks to 24 weeks (or until Dec. 31, 2020, whichever is earlier). The Act allows PPP borrowers who received a PPP loan before the Act became law to elect an eight-week covered period for their business.
The CARES Act allowed employers and self-employed individuals to delay the deposit of the employer-portion (6.2%) of the social security tax on wages and 50% of the tax imposed on self-employment income, respectively. However, once the PPP loan was forgiven, the CARES Act prohibited employers/self-employed individuals from continuing to take this payroll tax deferral. The Flexibility Act removes this restriction. PPP borrowers are now allowed to take advantage of the payroll tax deferral from March 27 to December 31, 2020.
Loan Term and Repayment
The SBA set the PPP loan maturity term at two years. The Paycheck Protection Program Flexibility Act adjusted that. Now, for any PPP loan issued before the Flexibility Act became law, that has a loan balance that is not forgiven will have a minimum term of five years. PPP loans issued before June 5, 2020, that have a two-year term can be re-negotiated.
The CARES Act required PPP lenders to defer payments of PPP principal, interest and fees for at least six months and not more than one year. The Flexibility Act allows deferral of all payment of principal, interest and fees until the date the lender receives the payment in the amount of the loan forgiveness from the SBA.
DISCLAIMER: Please note, this blog does not constitute legal advice. The law and circumstances surrounding COVID-19 are changing daily. Please contact Steve, Cindy, Maren or Natalya for the most up to date information.