Paycheck Protection Program Flexibility Act of 2020: Correction to Some of the Restrictions to PPP Relief

The House is reported to vote next week on the bipartisan “Paycheck Protection Program Flexibility Act of 2020” to correct some of the flaws in the original Paycheck Protection Program (PPP). Many small businesses struggle with the various restrictions of the PPP loan requirements to receive forgivable loans, particularly shuttered businesses, and those with smaller payroll relative to other needed operating expenses. The spirit of the PPP in preserving employment and paychecks for more than a temporary period may be achieved with the removal of some of the restrictions for small businesses.

According to Rep. Dean Phillips (D-MN) and Rep. Chip Roy (R-TX) who introduced the bill, the legislation will:

  1. Allow forgiveness for expenses beyond the 8-week covered period.  Added flexibility to spread the loan proceeds over the full course of the crisis until demand returns. The bill changes the covered period to the earlier of— ‘‘(A) the date that is 24 weeks after such date of origination; or  ‘‘(B) December 31, 2020;’’; and strikes the date ‘‘June 30, 2020’’ each place it appears and inserting ‘‘December 31, 2020’’.
  2. Eliminate restrictions limiting non-payroll expenses to 25% of loan proceeds.  The PPP loans require that 75% of the loan go to payroll. Expanded ability to use PPP loan proceeds to pay fixed costs in addition to payroll.
  3. Eliminate restrictions that limit loan terms to 2 years.  Extend repayment period beyond two years to reflect the time it will take many businesses to achieve sufficient revenue to pay back the loan. The original Cares Act stated a ten-year repayment term, which was later reduced to two years. This bill states a minimum maturity of five years after application for loan forgiveness for loans with a remaining balance.
  4. Ensure full access to payroll tax deferment for businesses that take PPP loans.  The purpose of PPP and the payroll tax deferment was to provide businesses with capital to weather the crisis.  Delay of payment of employer payroll taxes and receiving the PPP loan should not be considered double-dipping.
  5. Extend the rehiring deadline to offset the effect of enhanced Unemployment Insurance.  To receive loan forgiveness under PPP, a business must rehire employees by a deadline of June 30, 2020.  However, the enhanced Unemployment Insurance created through the CARES Act is higher than the median wage in 44 states.  Many businesses have reported an inability to rehire employees because they are making more on Unemployment than they made working.  To mitigate this unintended consequence, the deadline to rehire employees under PPP should be extended to align with the expiration of enhanced Unemployment Insurance. The Bill expands the terms for reduction of loan forgiveness to add:
    • New Exemption based on Employee Availability – During the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness under this section shall be determined without regard to a reduction in the number of full-time equivalent employees if an eligible recipient— ‘‘(A) is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020; or ‘‘(B) is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020.

Additional Resources

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