The swift passage of the Paycheck Protection Program Flexibility Act (PPP Flexibility Act) of 2020 has brought welcome relief to borrowers who may be nearing the end of the 8-week Covered Period to expend the funds. While Congress has indicated that there is still work to be done on the Paycheck Protection Program (PPP), borrowers are now provided with additional options.
Highlights of the PPP Flexibility Act include:
- Program Extension: The PPP is extended from June 30, 2020 to December 31, 2020. While there is over $100 billion in PPP funding still available, borrowers must apply for PPP loans by June 30, 2020.
- Loan Forgiveness Covered Period: The Covered Period to spend forgiveness-eligible funds is extended from 8 weeks to the earlier of 24 weeks or December 31, 2020. Borrowers who received a PPP loan prior to the issuance of this Act do have the option to continue to use an 8-week Covered Period.
- Payroll Cost/Non-Payroll Cost Allocation: The prior 75%/25% split between payroll costs and non-payroll costs has been replaced with a 60%/40% split. Recent clarifications by the SBA and the U.S. Treasury Department have confirmed that borrowers who expend less than 60% on payroll costs will still be eligible for partial forgiveness.
- Rehire Exemptions: Full-time equivalent reductions between February 15, 2020 – December 31, 2020 meeting the standards below will not negatively impact loan forgiveness. In order to qualify, borrowers, in good faith, must be able to document:
- An inability to rehire individuals employed on February 15, 2020; and
- An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
- An inability to return to the same level of pre-February 15, 2020 business activity, due to compliance with governmental mandates from March 1, 2020 – December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
- Loan Period: For those borrowers who do not receive forgiveness, the loan term is extended from 2 years to a minimum of 5 years. Borrowers and lenders are permitted to modify the loan terms to conform to the Act’s requirements. Interest rates remain at 1%.
- Extension of Deferral Period: The CARES Act allowed for a 6-month deferral before borrowers were required to begin loan repayments. The PPP Flexibility Act relaxes this requirement, allowing borrowers to defer payments of principal, interest and fees until the date the forgiveness is remitted to the lender.
- Timing for Forgiveness Application: Borrowers who fail to apply for forgiveness within 10 months of the close of the Covered Period will be required to begin principal, interest and fee payments.
- Employer-Side Social Security Tax Deferral: Loan forgiveness is no longer connected with Section 2302(a) of the CARES Act, which allows for the following deferral of employer-side payroll taxes incurred by December 31, 2020:
- 50% due by December 31, 2021
- 50% due by December 31, 2022
As referenced above, future guidance is anticipated. However, the expanded Covered Period, loosened rehire exemptions, payroll cost/non-payroll cost spending adjustments and loan repayment timing, along with additional opportunities to defer employer-side social security taxes, are a good start toward increasing borrower alternatives.
Sax will continue to update you as further details are made available. Reach out to your Sax advisor or email covid19@saxllp.com with questions. For more and on-going information relative to your state and business, visit Sax’s COVID-19 Resource Center.