PPP Flexibility Act Loosens Forgiveness and Repayment Rules
June 5, 2020
Congress passed on June 3, 2020 H.R. 7010 https://www.congress.gov/bill/116th-congress/house-bill/7010/text entitled the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”), which is expected to be signed by the President. This Flexibility Act is intended as an amendment to the Paycheck Protection Program (“PPP”) rules under the CARES Act previously discussed here.
The Flexibility Act provides much needed relief to many PPP borrowers who have found it difficult to qualify for forgiveness by fully expending loan funds on qualified expenses during the 8-week “covered period” provided under the CARES Act. It also loosens repayment terms and the percentage of PPP funds required to be spent on “payroll costs” and addresses other concerns raised by some businesses.
However, many of these provisions raise more questions that will probably require further guidance from Treasury and SBA, such as:
- How does the cap on payroll costs for employees with more than $100,000 of annual compensation apply, given that the 8-week period ($15,385 of payroll) is now extended to 24 weeks ($46,154 of payroll)?
- And is partial forgiveness available if the portion of PPP funds spent on payroll costs is less than 60%? The Flexibility Act language suggests possibly not.
Key Provisions under the Act include:
- Extension of the 8-week covered period to 24 weeks, or until December 31, 2020 if sooner. Many businesses who faced delayed openings and/or decreased operating abilities from COVID-19 will thus have more opportunity to reopen, rehire and spend PPP funds during this expanded window for forgiveness. PPP borrowers who received a PPP loan before enactment of the Flexibility Act may still choose to use the 8-week covered period if they wish.
- 60% required spend on payroll costs (decreased from 75%). This should help businesses struggling to rehire but who face continued rent, mortgage interest, and utilities costs.
- Extension until December 31, 2020 (originally June 30, 2020) for retaining or rehiring employees. This should help more borrowers avoid reduced forgiveness under the minimum-75% payroll and full-time equivalent (“FTE”) maintenance rules.
- Safe Harbor for businesses unable to resume February 15, 2020 levels. Here, borrowers can avoid forgiveness reduction by establishing in good faith the inability by December 31, 2020 to:
- Rehire employees furloughed after February 15, 2020
- Hire similarly qualified employees, or
- Resume business activity levels in effect prior to February 15, 2020 due to compliance with U.S. Department of Health and Human Services (HHS), Centers for Disease Control and Prevention (CDC) or Occupational Safety and Health Administration (OSHA) guidance
- 10-month deadline on forgiveness application. This starts on the last date of the covered period. After this period, the loan begins to amortize with payments of principal, interest and fees required.
- Loan repayment terms extended from 2-years to 5-years. This applies on PPP funds that are not forgiven along with deferral until the date the lender receives SBA forgiveness funds for all payments of principal, interest, and fees.
- Payroll tax deferral permitted for PPP borrowers. PPP borrowers whose loans were forgiven were previously restricted from using the CARES Act deferral provisions available to other businesses on employer Social Security tax and 50% of self-employment tax otherwise due between March 27, 2020 and December 31, 2020. Half of such deferred amounts are due by December 31, 2021 with the other half due by December 31, 2022.
We will continue to monitor and provide updates on PPP guidance from Treasury and SBA as it becomes available. In the meantime, please contact our team of professionals for assistance with PPP planning and compliance.