PPP Update: Paycheck Protection Program Flexibility Act of 2020
On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (the “Flex Act”) was signed into law. The Flex Act provides several amendments to the Paycheck Protection Program (“PPP”), including:
- Requirement to spend 75% of PPP loan proceeds on payroll costs reduced to 60%.
The Flex Act would require PPP loan recipients to spend at least 60% of loan proceeds on payroll costs in order for the loan to be forgiven, whereas the current rule imposed by the SBA requires at least 75% of PPP loan proceeds be spent on payroll costs.
Under the Flex Act, a PPP loan recipient that fails to use at least 60% of the PPP loan proceeds for payroll costs is ineligible for loan forgiveness (i.e., a PPP loan recipient that only uses 59% of the proceeds for payroll costs would not be eligible for any loan forgiveness).
- “Covered Period” extended to earlier of 24 weeks or December 31, 2020.
The Flex Act would extend the period in which borrowers must utilize PPP funds to be eligible for loan forgiveness (the “Covered Period”) from eight weeks after loan origination to the earlier of 24 weeks after loan origination or December 31, 2020.
A PPP loan recipient who received a loan before the Flex Act is signed into law has the option to continue using the eight week Covered Period.
- Minimum maturity of 5 years for PPP loans.
Under the current SBA rule, PPP loan recipients must repay the unforgiven portion of their loan within two years. The Flex Act would allow PPP loan recipients to repay the unforgiven portion of their loan over a term of up to five years.
This change only applies to PPP loans made on or after the date on which the Flex Act is signed into law. However, the Flex Act does not prohibit lenders and borrowers from mutually agreeing to modify the maturity date of PPP loans made before such date.
- Extends deferral of principal and interest payments until the date upon which the forgiveness amount is remitted by the SBA to the lender.
The Flex Act would eliminate the six month deferral of payments under the PPP loan, and instead allow PPP loan recipients to defer payments until the date the lender is reimbursed by the SBA for the forgiven amount.
If a PPP loan recipient does not apply for loan forgiveness within 10 months after the Covered Period, the PPP loan recipient must begin to make payments on its PPP loan.
- PPP loan recipients that receive loan forgiveness may now defer certain payroll taxes.
The Flex Act would allow employers receiving PPP loan forgiveness to defer the employer portion of social security taxes for all payroll paid between March 27, 2020 and December 31, 2020. 50% of the tax deferred will be payable on December 31, 2021, with the remainder payable on December 31, 2022.
- Exemption to loan forgiveness reduction based on decrease in employees.
Under the Flex Act, an employer will be exempt from a reduction in loan forgiveness resulting from a proportional decrease in employees if the employer can document in good faith:
(i) An inability to rehire the same individuals or similarly qualified individuals; or
(ii) An inability to return to the same level of business activity that the business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the federal government between March 1, 2020 and December 31, 2020 related to COVID-19.
* The information contained in this document is provided for informational purposes only. It should not be construed as business, legal, accounting, tax, financial, investment or other advice on any matter and should not be relied upon for such.
The information in this document may not reflect the most current developments as the subject matter is extremely fluid and may change daily. The content and interpretation of the issues addressed herein is subject to revision. Koley Jessen, P.C., L.L.O. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this document to the fullest extent permitted by law. Do not act or refrain from acting upon the information contained in this document without seeking professional or other advice.