On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”) was signed into law. The relatively short law provides some major benefits to businesses who receive Paycheck Protection Program (“PPP”) loans.
Notably, the PPP Flexibility Act extends the covered period (the period in which borrowers may use PPP loan proceeds and request forgiveness of those amounts from the SBA) from 8 weeks to 24 weeks or until December 31, 2020, whichever is earlier. This change should make it easier for employers to reach full or near-full forgiveness of their PPP loan. The six-month deferral of payments has been extended to the date on which the SBA remits the forgiveness amount to the lender.
The PPP Flexibility Act also lowers the ratio of payroll to non-payroll expenditures businesses must meet in order to qualify for full loan forgiveness of expenditures made during the covered period. Initially, employers had to use at least 75% of their PPP funds on payroll in order to qualify for the maximum amount of loan forgiveness. Now, employers are only required to use 60% of their PPP funds on payroll in order to qualify for the maximum amount of loan forgiveness.
The repayment term of the loans has also been extended from two years to five years. Those receiving new loans will automatically receive the five-year repayment term; whereas, those with existing loans will have to work with their lender to negotiate an extension of the two-year term.
Finally, PPP borrowers are also permitted to defer payment of payroll taxes under Section 2302(a) of the CARES Act, which was previously prohibited.
It is important to remember that several aspects of the PPP have not changed, such as the interest rate, which remains at 1%. Also unchanged are the expenses that you can use your PPP loan to cover. Businesses must continue to use their loan proceeds only for qualified expenses to ensure they remain compliant with the terms of their loan. Additionally, the provisions related to reductions in loan forgiveness for reducing employee wages and reducing the number of your full-time equivalent employees still exist (although employers now have the 24-week covered period to restore their workforce, rather than June 30, 2020).
In light of these changes, it is also anticipated that an updated loan forgiveness application will be released by the SBA in the coming days or weeks.
What Does This Mean For You?
If your business has received a PPP loan, you should become familiar with the additional relief that may be available to you under the PPP Flexibility Act in order to maximize your loan forgiveness. It is anticipated that the SBA will continue to update its Frequently Asked Questions, which can be located here. Borrowers are encouraged to check the FAQs frequently.
If you have questions about this or any other business matter, please contact Grace Nguyen Bond at firstname.lastname@example.org or 717-509-7226.
**This update is provided for informational purposes only and should not be construed as legal advice or as creating an attorney-client relationship where one does not already exist. This article was published on June 11, 2020. Please be aware that the laws and regulations related to the COVID-19 pandemic are being updated rapidly. Please check back or contact us for the most up-to-date information.**