The Paycheck Protection Program Flexibility Act of 2020 (PPPFA) was signed into law on June 5, 2020 in order to provide relief to borrowers under the Paycheck Protection Program (PPP). The PPPFA amends the original CARES Act to change some limitations placed on PPP loans, thereby making the loan terms more favorable for borrowers.
Specifically, the PPPFA:
- stretches the loan forgiveness period from 8 weeks following loan disbursement to 24 weeks following loan disbursement, but the new loan forgiveness period may not extend past December 31, 2020;
- pushes back the safe harbor cutoff date for rehiring “full-time equivalent” (FTE) employees and eliminating prior salary/wage reductions from June 30, 2020 to December 31, 2020, allowing PPP borrowers more time to return to pre-pandemic payroll numbers;
- amends the payment deferral period from 6 months after loan origination to the date on which the approved loan forgiveness amount is remitted to the lender, except that if a borrower does not submit its loan forgiveness request within 10 months after the end of the applicable loan forgiveness period, then the borrower will be required to begin making principal and interest payments after the 10-month period;
- requires that the minimum maturity of a PPP loan made on or after the enactment of the PPPFA be 5 years. The PPPFA also provides that a borrower and lender can now agree to the amendment of a PPP loan even originated prior to the PPPFA to reflect the 5-year maturity;
- provides an exception to the requirement that loan forgiveness be reduced if there is a decrease in FTEs, if the borrower documents, in good faith, either its inability to rehire an individual who was an employee on or before February 15, 2020; and its inability to hire a similarly qualified FTE employee on or before December 31, 2020; or its inability to return to the same level of business activity at which the business was operating prior to February 15, 2020, due to compliance with requirements or guidance relating to government standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19;
- amends the CARES Act to allow a borrower who obtains loan forgiveness to take advantage of the CARES Act provision that permits a business to defer payment of the employer’s share of Social Security taxes over a two-year period; and
- lowers the amount required be spent on payroll costs to qualify for forgiveness from 75% of loan proceeds to 60% of loan proceeds.
The PPPFA is aimed at making forgiveness easier, with the possibility of full forgiveness for many businesses. Businesses will now have 24 weeks to restore payroll and can use 40% of the forgiven amount for non-payroll costs as defined in the original act. There may be further changes and updates coming as new questions and issues arise, but, for now, Congress has shown a willingness and an ability to adapt as issues arise and to amend the PPP to truly benefit businesses.
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