Paycheck Protection Program Flexibility Act Signed into Law

This article has been updated with the most current information from the SBA as of June 11, 2020.

On June 5, 2020, H.R.7010 was signed into law modifying the Paycheck Protection Program (PPP) and making loan forgiveness more accessible for business owners. The Paycheck Protection Program Flexibility Act (PPPFA) amends sections of the original Small Business Act and the CARES Act including covered period extensions, employee availability, minimum loan terms, and deferral payments.

As of Monday, June 8, 2020, a joint statement from SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin was released announcing the SBA and Treasury will soon issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application reflecting the amendment outlined in the PPP Flexibility Act.

On June 11, 2020, revisions to the PPP interim final rules were released to clarify certain provisions in the PPP Flexibility Act.  The most noteworthy clarification in the interim final rule made it clear that businesses that spend under the 60 percent threshold on payroll costs may still be eligible for partial loan forgiveness—the 60 percent was not intended to be a cliff.  Further, June 30, 2020 is still the last day for PPP loans to be approved.

Here, we have outlined the changes and how they may impact loan forgiveness.

The PPPFA revised the definition of the covered period. With businesses struggling to reopen for business and manage physical distancing expectations at work, they have the option to spread the funding across a 24-week period or use the original eight weeks if they already received their loan before the enactment of PPPF Act. For new loans after enactment, the covered period will be 24 weeks.  In either case, the covered period cannot extend later than December 31, 2020.

This is a breath of fresh air for businesses attempting to maximize spending into the shorter period.

Additionally, borrowers now have 10 months after the last day of their covered period to apply for loan forgiveness.

Examples:

• Borrower receives funding on June 15, 2020. Covered period ends 24 weeks after on November 29, 2020.  Loan forgiveness application must be submitted before September 30, 2021.
• Borrower received funding May 15, 2020. Covered period may end on July 9, 2020 or October 29, 2020.  Loan forgiveness application must be submitted before May 10, 2021 (if 8 week period was chosen) or August 30, 2021 (if 24 week period was elected).

Similar to the covered period extension, the June 30, 2020 deadline to rehire employees and reverse salary cuts has been moved to December 31, 2020. For businesses that expect to remain closed through June, this provision provides a much-needed delay.

Additionally, borrowers may provide a good faith document that from February 15 to December 31, 2020, they were unable to rehire employees or make new hires for open roles and return to the same level of business activity due to sanitation standards, social distancing, or other safety requirements related to COVID-19. The documentation now allows borrowers to receive loan forgiveness despite staffing reductions.

Originally, 75 percent of the PPP loan funds had to be used to maintain payroll to receive loan forgiveness. The PPPFA, however, amends that ratio to 60 percent. This change is particularly meaningful for businesses in high-rent regions, or where monthly expenses are not dominated by payroll costs.

The PPPFA removes the six-month deferral and instead defers the start of payments to coincide with the date loan forgiveness is transmitted to the lender. If the borrower does not apply for the loan forgiveness within 10 months after the last day of the covered period, they must make payments at that point.

The term, for loans on or after date of enactment of this Act, will be for a minimum period of five years. Loans funded before enactment must negotiate with their bank in order to extend the term.

A final PPPFA change, PPP loan recipients are now eligible to defer the employer’s share of Social Security taxes otherwise due on March 27, 2020 through December 31, 2020 (50% deferrable to December 31, 2021 and balance to December 31, 2022). The CARES Act specifically excepted borrowers whose PPP loans are forgiven to be able to participate in the deferral of payroll taxes. That exception has now been removed to assist with cash-flow for still-struggling businesses.

We expect the SBA and US Treasury will soon provide additional guidance on the new Act.

The entire Aldrich team is monitoring the PPPFA updates and guidance. We’ll be updating our COVID-19 Resource Center diligently to keep you apprised of changes as they happen. If you have any questions about the PPP loan forgiveness application, reach out to your Aldrich Advisor.

Please check back for future updates, when further guidance and modified applications are released.