Today, the President signed into law the Paycheck Protection Program Flexibility Act of 2020. The provisions of the new bill significantly modify the Paycheck Protection Program and give borrowers greater flexibility in using loan proceeds as well as obtaining loan forgiveness. The new provisions include the following:
- Extension of the covered period from 8 weeks to 24 weeks from loan origination date or December 31, 2020, whichever is earlier
However, borrowers can elect to use the 8 week period after the loan origination date instead. - Percentage to be used for payroll costs reduced from 75% to 60%
To obtain forgiveness, borrowers must use at least 60% of their loan for payroll costs and may use up to 40% for non-payroll costs (mortgage principal, rent and utilities). On Monday, June 8th, the Treasury and the SBA put out a joint statement indicating that the new 60/40 ratio is not a cliff. (A cliff would mean that borrowers who did not use at least 60% of the proceeds for payroll costs would not qualify for any forgiveness.) - Extension of deferral period for loan repayment
Repayment of loan is now deferred until the date on which the amount of forgiveness is determined. - Deferral of employer payroll taxes
Under the original law, PPP borrowers could only defer employer payroll taxes until they receive loan forgiveness but the new bill removes this exception. Borrowers will now be able to continue to defer payroll taxes through December 31, 2020 with 50% of the deferred taxes due at the end of 2021 and 50% due at the end of 2022. - Safe harbor date for restoring full-time equivalent (FTE) employees and salaries/wages is changed from June 30, 2020 to December 31, 2020
Under the original law, if borrowers were able to eliminate reductions in FTE employees and/or salaries and wages by June 30, 2020 (or earlier) then they would be exempt from any reduction in loan forgiveness amount. The new bill extends the “restoration” date to December 31, 2020. - New exemption based on employee availability and compliance requirements related to COVID-19
The bill introduces a new exemption to the FTE reduction if the borrower:- is able to document an inability to rehire individuals who were employees on February 15, 2020 and hire similarly qualified employees for unfilled positions on or before December 31, 2020 OR
- is able to document an inability to return to the same level of business activity as before February 15, 2020 due to compliance with requirements established by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during March 1, 2020 and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
- Repayment period extended to five years for new loans
However, existing PPP loans can have their maturity extended if lender and borrower agree. Interest rate remains at 1%.
- Extension of the covered period from 8 weeks to 24 weeks from loan origination date or December 31, 2020, whichever is earlier
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Updated 6.8.20
