On June 5th, President Trump signed into law the Paycheck Protection Program (PPP) Flexibility Act. The Act makes several important changes to the program with the goal of maximizing loan forgiveness for borrowers. Below is a summary of the key changes.
The loan forgiveness covered period is extended from 8 weeks to 24 weeks. The 24-week period begins on the day loan proceeds are received and extends the time frame for borrowers to spend funds on eligible payroll and nonpayroll costs. For loans issued before the enactment of this change, the borrower may elect to retain the original 8-week period.
The 75% minimum payroll threshold has been lowered to 60%. This means borrowers can spend a greater percentage of the loan proceeds on nonpayroll costs (rent, utilities, mortgage interest) without impacting loan forgiveness. Even though the wording of the Act appears to make the 60% threshold a cliff, both SBA and Department of Treasury have stated they will not apply an all-or-nothing interpretation. Partial loan forgiveness will be available even if payroll costs fall below 60%.
The deadline to restore full-time equivalent employee (FTE) headcount and wages is extended from June 30, 2020 to December 31, 2020.
New exceptions are available to help businesses satisfy the requirement of maintaining FTE/wage levels. A business will not be penalized if it can document an inability to rehire employees, suitable replacements or return to pre-coronavirus levels due to compliance with safety requirements.
For new PPP loans, the minimum maturity is now 5 years. The previous maturity period established by the SBA was 2 years. Although not required, previous loan agreements may be modified to include the longer maturity period.
The loan payment deferral period is expanded. A borrower will enjoy deferred payments until the loan forgiveness amount is determined by the lender and funded by the SBA.
PPP loan forgiveness no longer prevents employers from taking advantage of payroll tax deferral options.
While the PPP Flexibility Act provides welcomed relief, clarity is still needed on the application of some of the Act’s provisions. SBA and Department of Treasury have publicly stated that forms and guidance will be updated and issued promptly.
Let our dedicated PPP task force guide you through the loan forgiveness process. Please give us a call for more information.