On June 5, President Trump signed the Paycheck Protection Program Flexibility Act into law. The bipartisan legislation provides a greater opportunity for businesses to use, and seek forgiveness of, their PPP loan proceeds. The Paycheck Protection Program (PPP) still has $125 billion in unclaimed funds to offer small businesses.
The Small Business Administration has said that in consultation with the Treasury Department, it will promptly issue rules and guidance, a modified borrower application form and a modified loan forgiveness application implementing these legislative amendments to the PPP.
One of the most significant modifications the Flexibility Act makes is the extension of the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness. Borrowers who have already received PPP loans retain the option to use an eight-week covered period.
The Small Business Legislative Council (SBLC), of which PPAI is a member, notes that this modification updates both the forgivable use window—the window of time during which the business can use the PPP loan on eligible expenses and then apply to have those amounts forgiven—and the forgiveness reduction window—the relevant window of time for the purposes of determining whether the business has made any changes that will impact the business’ loan forgiveness eligibility. In its analysis, the SBLC points out that a business’ eligible loan forgiveness amount may be reduced if, during the covered period, it reduced the average number of full-time equivalent employees or reduced the average salary or hourly rate of any individual employee making $100,000 or less per year. Accordingly, the Flexibility Act will expand not only the time to use the PPP loan but also the period that will be looked at for the purpose of determining any reductions to loan forgiveness. It is because of this, the SBLC says, that businesses that have already received a PPP loan will need to carefully consider whether to elect to use the original eight-week covered period or the new expanded covered period for all loan forgiveness purposes. Read more of its analysis here.
The Flexibility Act also lowers the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.
The law provides a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
It provides a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020. The PPP Flexibility Act also increases to five years the maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020, and extends the deferral period for borrower payments of principal, interest and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).
In addition, the new rules will confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved.
Click here to download the SBLC’s full update and analysis of the PPP Flexibility Act.
On June 18, PPAI is hosting a free webinar presented by PPAI Public Affairs Manager Maurice Norris and General Counsel Cory Halliburton on the PPP Flexibility Act and loan forgiveness. Click here for more information and to register.
