Paycheck Protection Program Flexibility Act: How it impacts your PPP loan forgiveness
On June 3, 2020, the Senate unanimously passed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA), which amends the CARES Act, and specifically the Paycheck Protection Program. On June 5, 2020, this bill was signed into law by President Trump. The most notable amendments are:
- Originally, only the PPP loan proceeds that were used within the eight weeks after loan disbursement were eligible for forgiveness. The new bill extends this period to the earlier of 24 weeks after loan disbursement or December 31, 2020. Borrowers who have received loan proceeds before the enactment of the PPPFA may still elect to use their proceeds within the original eight week period. Borrowers who take advantage of the new period will have to maintain payroll levels for 16 additional weeks after loan disbursement as compared to the original CARES Act. The cap on wages over the 24 week period is $46,154.
- The maturity date for funds borrowed after June 5 that are not eligible for forgiveness is extended from two years to five years. Borrowers that received loans before the PPPFA’s enactment can agree with their banks to modify the maturity terms on their existing loans.
- The percentage of loan proceeds that must be spent on payroll costs was reduced from 75% to 60%. However, if borrowers do not meet the 60% threshold, none of the loan amount is eligible for forgiveness. The administration and certain key members of Congress have indicated this new 60% “cliff” in which businesses would lose loan forgiveness if they spend more than 40% on non-payroll expenses will be modified or eliminated.
- The safe harbor provisions for rehiring of employees and restoration of salary and wage reductions are extended from June 30, 2020 to December 31, 2020.
- There is a new forgiveness exemption which provides that if a borrower is able to document that it is not able to return to the same level of business activities at which it was operating before February 15, 2020 because of guidance issued by certain federal agencies relating to sanitation, social distancing or other COVID-19 related safety requirements, such decrease in activity will not negatively affect the borrower’s eligibility for loan forgiveness.
- The PPPFA also permits borrowers to defer the payment of up to 50% of employer payroll taxes until December 31, 2020.
- The new law does not extend the PPP loan application deadline of June 30, 2020.
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