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Paycheck Protection Program Flexibility Act of 2020 Signed into Law

Updated June 5, 2020

On June 5, 2020, the President signed into law the Paycheck Protection Program Flexibility Act of 2020 (“PPP Flexibility Act”), which relaxes a number of requirements of and restrictions on the Paycheck Protection Program (“PPP”) established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and clarified by subsequent guidance from the Small Business Administration (“SBA”) and the U.S. Department of the Treasury.  For a synopsis of the key takeaways, please see below.

June 4, 2020

The U.S. Senate unanimously passed the House version of the Paycheck Protection Program (“PPP”) legislation, known as the Paycheck Protection Flexibility Act Wednesday night. The Act had passed the U.S. House on May 28, 2020, nearly unanimously.  It now heads to the President’s desk for signature. 

The Act provides important new flexibility to borrowers in the Paycheck Protection Program (“PPP”) in a number of key respects:

  1. Deadline to Use the Loan Proceeds: Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond December 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
  2. Payroll Expenditure Requirements: Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met.  
  3. Safe Harbor for Rehiring Workers: Loan forgiveness under the PPP remains subject to reduction in proportion to any reduction in a borrower’s full-time equivalent employees (“FTEs”) against prior staffing level benchmarks. The Act extends the PPP’s existing safe harbor deadline to December 31, 2020: borrowers who furloughed or laid-off workers will not be subject to a loan forgiveness reduction due to reduced FTE count as long as they restore their FTEs by the deadline.
  4. New Exemptions from Rehiring Workers: The Act includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. 
    • The new bill allows borrowers to adjust because they could not find “similarly qualified employees” before December 31, 2020.  
    • Secondly, the forgiveness will not be reduced due to a reduced FTE count if the borrower, in good faith, can document an inability to return to the “same level of business activity” as prior to February 15, 2020 due to sanitation, social distancing, and worker or customer safety requirements.
  5. Loan Maturity Date: The Act extends the maturity date of the PPP loans (i.e. any portion of a PPP loan that is not forgiven) from two years to five years. This provision of the Act only affects borrowers whose PPP loans are disbursed after its enactment.  With respect to already existing PPP loans, the Act states specifically that nothing in the Act will “prohibit lenders and borrowers from mutually agreeing to modify the maturity terms of a covered loan.” The interest rate remains at 1%.
  6. Loan Deferral Period: The Act allows for the deferral of principal and interest payments until the date the lender receives the forgiveness amount from the SBA, which in most cases will be significantly longer than previously allowed. Previously, a borrower’s deferral period was to be between six and 12 months.
  7. Payroll Tax Deferral: The Act lifts the ban on borrowers whose loans were partially or completely forgiven from deferring payment of employer payroll taxes.  The payroll tax deferral is now open to all PPP borrowers.

The Act provides much-needed flexibility to businesses who needed to spend PPP loan proceeds but could not open in order to do so.  As with the initial roll-out of the PPP, it will be up to the Department of the Treasury and the Small Business Administration to provide regulations with respect to the Act.

For assistance with your PPP Loan Forgiveness questions, please don’t hesitate to reach out to your Beaird Harris advisor. We’re here and happy to help!

Resources:

National Law Review
Journal of Accountancy

 

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