Paycheck Protection Program Flexibility Act of 2020
by Elijah C. Lovingfoss, Esq.
On Wednesday, June 3, 2020, Congress passed the Paycheck Protection Program Flexibility Act of 2020 (the “Act”). The Act was meant to make the provisions of the Paycheck Protection Program (the “PPP”) more lenient to allow recipients to take full advantage of the forgiveness provisions and to defer taxes.
There are several key takeaways from the Act that businesses who are eligible for the PPP program should be aware of.
First, the Act has extended the minimum maturity date of PPP loans from two years to five years.
Second, and of particular relevance to businesses who have already accepted PPP loans, the period for which PPP funds may be used (for allowed payroll and other expenses) and the use of those funds applied towards forgiveness has been extended. Put more simply, if a business uses PPP funds during the extended period, those funds will be used to calculate the amount of forgiveness that the business is eligible for. Instead of eight weeks from the date the loan was originated, the period now ends the earlier of either twenty-four weeks from the origination of the loan or December 31, 2020. However, if a business received a PPP loan prior to the enactment of the ACT, it may choose to utilize the original eight-week period as the forgiveness period.
Third, the Act also now includes a provision that provides an exemption for loan forgiveness if a business is not able to rehire its staff or similarly qualified individuals. Specifically, the amount of loan forgiveness will now be calculated without regard to a proportional reduction in full-time employees so long as the business was unable to rehire individuals who were employees prior to February 15, 2020, and the business was unable to hire similarly qualified individuals to fill the position between February 15, 2020 and December 31, 2020. Alternatively, if the business can show that, due to restrictions placed on its operations by HHS, the CDC, or OSHA, it cannot return to its pre-February 15, 2020 levels of business activity between March 1, 2020 and December 31, 2020, then it will also be eligible for the exemption.
Fourth, the Act has placed new limitations on forgiveness while also reducing the percentage of payroll requirement for forgiveness. The Act now requires that a business use only 60% of PPP funds for payroll rather than 75%. However, the Act also now provides that if a business uses less than 60% of its PPP funds for payroll it will not be eligible for forgiveness at all. This is harsher than the old provision, which only proportionally reduced the amount of forgiveness if less than 75% of PPP funds were used for payroll.
Fifth, the Act also updates the loan deferment provisions of the PPP program. The Act replaces the previous six month minimum deferment period with a deferment period that lasts until the PPP lender receives the approved amount of forgiveness for that loan. If a business does not apply for forgiveness within ten months from the end of the covered period (the covered period is the 24 week period from the date of the origination of the loan or the period from the date of the origination of the loan to December 31, 2020), then the business must begin making payments on the day after the ten-month period expired. Accordingly, a business could potentially extend its deferment period by waiting to apply for forgiveness until near the expiration of the ten-month period.
Finally, the ACT now permits businesses that accepted PPP loans and had those loans forgiven to defer their payroll taxes, which had been prohibited in the original program.
DISCLAIMER: The information in this article is meant only for the general knowledge of our readers and not as legal advice. The situation surrounding the PPP program and COVID-19 is rapidly evolving and no guarantee of the accuracy of the information contained in this article is made beyond the date of publication. It is expected that published guidance from the SBA and future legislation will impact this information going forward. If you require legal advice, please contact an attorney with Kennerly, Montgomery & Finley who can provide up to date information regarding the Paycheck Protection Program.
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