PPP Flexibility Act: Time Granted, Changes to Loan Forgiveness Terms
On June 3, 2020, the Senate passed a bill modifying the provisions related to the forgiveness of loans made to small businesses under the Paycheck Protection Program implemented in response to COVID-19. At the time of publication, this bill is awaiting the President’s signature.
Extended Loan Forgiveness Period
To alleviate the problem many small businesses had in effectively utilizing the PPP loan proceeds to cover payroll in an 8-week period, the loan forgiveness covered period is extended to the period beginning on the date of the origination of a covered loan and ending the earlier of the date that is 24 weeks after such date of origination; or December 31, 2020. An eligible recipient that received a covered loan before the date of enactment of this bill may elect for the covered period to remain at eight weeks after the date of the origination of such covered loan.
Additionally, the covered period during which a loan recipient may use such funds for certain expenses, while remaining eligible for forgiveness, is extended from June 30, 2020 to December 31, 2020. This will allow businesses who are receiving PPP loans in the second tranche of lending to have 24 covered weeks.
The non-payroll portion of a forgivable covered loan is increased from the current 25% up to 40%, changing the threshold for payroll expenses to 60% from 75%.
The bill also adds an exemption based on employee availability for the reduction of loan forgiveness calculation based on restoring full time equivalents. The period in which an employer may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a paycheck protection loan is now extended to December 31, 2020. The forgivable amount must be determined without regard to a reduction in the number of employees if the recipient is able to document the business is: (1) unable to rehire former employees and is unable to hire similarly qualified employees, or; (2) unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19. Further guidance is needed on what constitutes sufficient documentation to avoid loan forgiveness reductions.
It is important to note that PPP recipients may defer payments until they receive compensation for forgiven amounts. Recipients who do not apply for forgiveness have 10 months from the program’s expiration to begin making payments.
The two-year repayment term is changed to a minimum maturity of five years for a paycheck protection loan with a remaining balance after forgiveness.
Businesses with PPP loan forgiveness are now eligible to defer payroll tax payments.