On Friday, June 5, 2020, President Trump enacted the bipartisan PPP Flexibility Act to provide more time and flexibility to borrowers seeking forgiveness for loans issued under the SBA Paycheck Protection Program.
Key Components of the PPP Flexibility Act
Longer Forgiveness Coverage Period
The “Covered Period” during which expenses eligible for forgiveness could be incurred would be 24 weeks, or 8 weeks for yet-to-be funded loans, at the borrower’s option.
Lower Payroll Expense Proportion
Formerly, the SBA mandated that payroll expenses had to be at least 75% of the total forgiveness amount for which borrowers applied. The Act explicitly states that the threshold would be reduced to 60%.
- For example, a $1 million PPP loan borrower could now expect to have the full amount of her loan forgiven if her business incurred $600,000 of payroll expenses and $400,000 of covered rent and utility expenses.
- Expands Repayment Timeframe for Unforgiven Loan Amounts: the new law would give borrowers five years to repay unforgiven loan amounts rather than just two years.
New Exceptions for Borrowers Who Can’t Fully Restore Workforce
Previously, borrowers otherwise faced a reduction in loan forgiveness if their FTE count decreased from pre-pandemic levels except in certain limited situations (for example, it could exclude from their employee count calculation employees who turned down good faith offers of reemployment). The new law would add exclusions where employers documented:
- (1) they could not find qualified employees, or
- (2) they were unable to restore business operations to February 15, 2020, levels due to COVID-19 restrictions such as local stay-at-home orders, social distancing, etc.
Payroll Tax Payment Delay Allowed
The bill would allow businesses that receive PPP loan forgiveness to also delay payment of payroll taxes. This was prohibited under the CARES Act.
Extending the covered period to 24 weeks is not meant to extend the original cutoff date for new PPP loans, for which applications are currently set to expire on June 30, 2020, whether or not the SBA has PPP funds remaining as of that date. As of Wednesday, June 3, 2020, the SBA reported that, of the $660 billion available, loans totaling about $511 billion have been approved.
- Paycheck Protection Program Flexibility Act of 2020
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