Paycheck Protection Program Flexibility Act
The President signed the Paycheck Protection Program Flexibility Act (hereinafter “Act”)) into law on June 5, 2020. The Act changes the Payroll Protection Program (“PPP”) as follows:
- It extends the maturity date for loans which are not forgiven:
- For loans made on or after the date of enactment of this new Act, the maturity date will be 5 years, instead of 2 years.
- For existing loans made before this new Act was in effect, the maturity date is still 2 years, unless the lender and borrower mutually agree to modify the existing terms.
- The covered period to use the funds in order to receive forgiveness can be extended from 8 weeks after origination to either 24 weeks after origination or December 31, 2020, whichever is sooner.
- This is a choice that borrowers have. By using the 24 weeks, it may make it easier for borrowers to use the funds for payroll costs in order to receive forgiveness. However, it may also make it more challenging to keep a full workforce in place to qualify for full forgiveness.
- The safe harbor/cure date to bring back full-time equivalent employees and increase any salary reductions (in order to still receive loan forgiveness) is changed from June 30, 2020 to December 31, 2020.
- Borrowers will have to decide whether the December 31, 2020 date is beneficial for them or not. Some borrowers may be able to bring up their number of full-time equivalent employees by June 30th but may not be able to retain their workforce until December 31st. While other borrowers are not operational now, but foresee that they may be by December 31st.
- Adds an exemption based on employee availability. The amount of loan forgiveness will not be reduced for a reduction in the number of full-time equivalent employees during the period beginning on February 15, 2020, and ending on December 31, 2020 (changed from June 30, 2020), if a borrower in good faith is able to document:
- “an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and…an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020;” or
- “an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued 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 the period beginning on 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.”
- Reduces the requirement that 75% of proceeds to be used for payroll costs to 60%: To receive loan forgiveness, a borrow needs to use least 60% of the covered loan amount for payroll costs, and may use up to 40% for payment of interest, covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), covered rent obligation, or any covered utility payment.
- The way this is worded, it seems that there will be no forgiveness if less than 60% is used for payroll costs, rather than a reduced amount of forgiveness.
- The 6 month deferral is changed to the date on which the amount of forgiveness determined is remitted by the SBA to the lender.
- Adds in that the deadline for applying for forgiveness is 10 months after the end of the covered period.
- Employer payroll taxes are deferred. Borrowers will be eligible for the deferral of payment of the employer’s share of Social Security payroll taxes (6.2%), regardless of whether the borrower receives loan forgiveness.
Many things are still unclear and we will wait to see how the SBA will interpret this new Act and if they will provide any clarification.