by | Jun 5, 2020

On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act). The PPP Flexibility Act makes several changes to PPP loans and the loan forgiveness process. These changes include:

  • Extending the loan forgiveness period from 8 weeks to 24 weeks;
  • Changing the percentage of the loan that must be used for payroll for loan forgiveness from 75% to 60%;
  • Increasing the loan repayment period for new PPP loans from two years to five years;
  • Allowing businesses receiving forgiveness to receive payroll tax deferment; and
  • Reducing the number of businesses that may receive reductions to their loan forgiveness amounts based on the inability to hire back employees or resume business as usual after complying with COVID-19 restrictions.

Loan Forgiveness Period:

The PPP Flexibility Act extends the loan forgiveness period from 8 weeks to 24 weeks. Borrowers may now seek forgiveness for payroll costs paid or incurred during a 24-week period beginning on either the date of disbursement of the borrower's PPP loan proceeds from the lender (the covered period) or the first day of the first payroll cycle in the covered period (the alternative payroll covered period). An eligible recipient that received a covered loan before the PPP Flexibility Act may elect to still have the 8-week period apply.

Payroll Costs Eligible for Forgiveness:

After the enactment of the PPP Flexibility Act, only 60% of the loan must be used for payroll costs for purposes of loan forgiveness. Previously, it was required that at least 75% of the loan amount was used for payroll costs.

 Loan Repayment Period:

All new PPP loans will have a five-year maturity. Existing loans obtained before the enactment of the PPP Flexibility Act will maintain their two-year maturity.

Payroll Tax Deferment:

The enactment of the PPP Flexibility Act amended Section 7(a)(36)(M) of the Small Business Act to provide a payroll tax deferment as follows:

During the covered period, the Administrator shall require lenders under this subsection to provide complete payment deferment relief for impacted borrowers with covered loans, including payment of principal, interest, and fees until the date on which the amount of forgiveness determined under section 1106 of the CARES Act is remitted to the lender.

Reductions to Loan Forgiveness Amount:

The PPP Flexibility Act provides that during the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness shall be determined without regard to a proportional reduction in the number of full-time equivalent employees if an eligible recipient can document the following:

  • Inability to rehire individuals who were employees of the eligible recipient on February 15, 2020;
  • Inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
  • 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.

Baylor Evnen’s discussion of the interim final rules pertaining to the Paycheck Protection Program is available here. Our previous summary of the Paycheck Protection Program is available here. Additionally, Baylor Evnen’s link to the Paycheck Protection Program Loan Forgiveness Application is available here. Please visit our Firm blog for the most recent updates regarding COVID-19 and our updated list of Coronavirus Resources.

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