The House and Senate both passed the Paycheck Protection Program Flexibility Act, H.R. 7010, and it is expected to be signed into law by the President today.

The Act makes significant changes to the Paycheck Protection Program, making loan forgiveness much easier for many businesses struggling with meeting the original requirements and timelines. By granting greater spending and rehiring flexibility, more time to use the funds, more time to re-hire employees, and a decrease in the mandatory minimum funds to be spent on payroll costs, more borrowers will be able to meet the loan requirements and achieve complete loan forgiveness.

There is still over $100 billion dollars available under the PPP program to be loaned. Small businesses that did not apply for a loan due to the original limitations on use of loan proceeds and the short timeframe in which to utilize the funds may want to consider if the changes provided for in the Act make it feasible for them to now apply. If it will now work for you and your business, you should not delay getting your application submitted. Many businesses who previously passed on the loan will now see it as a viable option.

Here are the highlights:

Increases the Amount of Time to Spend PPP Funds

The amount of time to spend PPP loan proceeds will be extended from eight weeks to the earlier of 24 weeks, or December 31, 2020. PPP loan recipients that have already received their loans will have the option to extend the covered period or continue with the original eight-week period.

Increases the Percentage of a Loan that Can Be Spent on Non-Payroll Costs

The amount of the loan required to be spent on payroll costs will be lowered from 75% to 60%. The other 40% may be used for other approved costs, such as mortgage interest, rent and utilities. Note that if payroll costs are not at least 60% of the total loan proceeds during the covered period then none of the loan would qualify for forgiveness.

Extends the Time to Re-hire Employees

The deadline for re-hiring employees and receiving loan forgiveness reductions under the PPP will be extended by six months, from June 30, 2020 to December 31, 2020. 

Provides Additional Safe Harbor for FTE Reductions

The loan forgiveness amount will no longer be decreased due to a reduction in the number of full-time equivalent (FTE) employees from February 15, 2020, through December 31, 2020, if the loan recipient can document:

(a) an inability to rehire individuals employed on February 15, 2020, and hire qualified replacements by December 31, 2020, or

(b) documentation of its inability to return to its the same level of business activity before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the CDC or OSHA during the period beginning on March 1, 2020 and ending 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.

Maturity of Loan Extended to Five Years

PPP loans will mature in five years instead of two years. While this change will apply to all PPP loans made on or after the enactment of the law, loan recipients will be able to retroactively extend the maturity of PPP loans funded before the enactment of the law if agreed to by their lender.

Payment Deferral Period Extended from 6 Months to 10 Months

A loan recipient will not be required to make any payments on the loan balance remaining, after giving effect to the forgiveness, until ten months after the loan was received. Note that loan recipients must apply for forgiveness within ten months after the last day of their covered PPP loan period, which is the earlier of 24 weeks from origination or December 31, 2020. Now you can defer through December 31, 2020 and pay the balance deferred 50% on December 31, 2021 and 50% on December 31, 2022.

Changes the Rule of Deferring Employer's Portion of Payroll Tax

Any loan recipient can now defer its portion of Social Security payroll taxes up to 6.2% for payments required to be made between March 27, 2020, and December 31, 2020, regardless of whether any portion of its PPP loan is forgiven. Previously, a loan recipient could not continue to defer its portion of Social Security payments after any of its PPP loan was forgiven.

These changes should provide needed financial assistance to many businesses struggling through these tough times. As always, contact us with any questions you have.