On Friday, June 5th, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act) into law. The PPP Flexibility Act modifies the Paycheck Protection Program (PPP) that was created under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) providing some welcome relief to many businesses currently using PPP loan proceeds and concerned about obtaining full loan forgiveness.
The two key changes brought about by the PPP Flexibility Act are as follows:
- Borrowers now have 24 weeks (but not beyond December 31, 2020) from the time they received their first loan installment to spend loan proceeds which is up from the 8 weeks contained in the CARES Act; and
- Mandatory payroll spending is reduced from 75% to 60% of the loan proceeds, provided, however, the borrower’s failure to spend at least 60% of the total loan amount on payroll will result in NO loan forgiveness.
Borrowers with pre-existing loans outstanding as of the date of the PPP Flexibility Act can opt-out of the extended PPP forgiveness period and, at their option, elect the 8-week forgiveness covered period measured from their PPP loan disbursement date. This option ensures that Borrowers that maintained their applicable full-time equivalent employees (FTEs) and salary/wage levels and spent their PPP loans over the original 8-week forgiveness period but are not able to reopen, or fully reopen and need to reduce headcount or wages following expenditure of PPP loan funds are not negatively impacted by the new, longer forgiveness period. On the other hand, borrowers using the new expanded 24-week covered period may need to maintain payroll levels for the full 24 weeks in order to avoid reductions in their forgivable loan amounts. Further guidance from the SBA will be required.
The PPP loan repayment period (for any part of the loan not forgiven) has been extended to five years from the original two year period while retaining the original 1% interest rate. The payment deferment period (principal, interest, fees) is now extended from six months to the date the borrower is told the amount of their loan forgiveness. Borrowers will be required to begin paying principal, interest, and fees on their PPP loans ten months after the end of the forgiveness covered period if they fail to apply for forgiveness.
Finally, the PPP Flexibility Act eliminates the exception to the allowance for deferral of payroll taxes relating to loan forgiveness. Previously, if a borrower received loan forgiveness, such borrower could not continue to defer payroll taxes as allowed under the CARES Act. A borrower may now continue to defer 2020 payroll taxes, even after it receives loan forgiveness with 50% of the deferred amount due by December 31, 2021 and the balance due by December 31, 2022.
Of note, there is still PPP money available for those who have not received a PPP loan which can be borrowed up until June 30th.
If you have any questions regarding this blog post, contact Patrick J. O’Sullivan.