The Paycheck Protection Program Flexibility Act (the “PPPFA” or the “Act”) was signed into law on June 5, 2020. As the name suggests, this Act provides greater flexibility to the existing Paycheck Protection Program (“PPP”), created under the CARES Act.
The PPP provides fully forgivable loans to certain eligible small businesses in response to the impact of COVID-19. Under the CARES Act, the amounts of loan forgiveness is reduced if, during certain periods:
The loan proceeds are used for non-qualifying expenses, or
Less than 75% of the loan proceeds are spent on payroll costs, or
The borrower does not maintain or restore its full-time equivalent employees to its pre-COVID-19 period numbers, or
The salary and wages of certain employees are reduced by more than 25%.
Recognizing that the CARES Act loan forgiveness requirements required many borrowers to rehire employees and use loan proceeds before their businesses opened or their business activities were restored, the PPPFA made the following changes:
The Act decreases the amount of the loan required to be spent on payroll costs from 75% to 60%, permitting up to 40% of the loan proceeds to be used for mortgage payments, rent, interest and utilities.
Payroll costs include:
Salary, wages, commissions and tips (up to $100,000 annualized per employee)
Employee benefits, including paid leave, insurance premiums and retirement benefits
State and local taxes withheld
Payroll costs for independent contracts and sole proprietors (also up to $100,000 annualized)
Extension of Covered Period
The term “covered period” now means the period beginning on the date of the origination of the loan and ending on the earlier of 24 weeks after date of origination or December 31, 2020. This change gives borrowers 24 weeks, instead of the original 8 weeks, to spend the loan proceeds on qualifying expenses and qualify for full forgiveness.
The Act permits borrowers to elect to apply the original 8 week covered period, beginning on the date of the loan’s disbursement, originally set forth in the CARES Act.
Additionally, borrowers now have until December 31, 2020 to restore their pre-COVID period full-time employee levels.
Exemption Based on Unavailability of Employees
Loan forgiveness will not be reduced for borrowers that have a decrease in full-time equivalent employees as compared to pre-COVID-19 periods, if such borrowers are able to document their inability to rehire individuals who were employees prior to February 15, 2020 and their inability to hire similarly qualified employees for unfilled positions. Similarly, borrowers will not be subject to reduced loan forgiveness if they are able to documents an inability to return to the same level of business activity as the business was operating at before February 15, 2020, due to compliance requirements or guidance established by the CDC, HHS, or OSHA between March and December, 2020, relating to sanitation, social distancing or other safety requirements.
For PPP loans disbursed after the date of the Act, the term of the loans for amounts not forgiven is extended from 2 years to 5 years. Existing PPP loans remain at 2 year terms, but borrowers and lenders may mutually agree to modify the maturity terms of these loans.
As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.
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