President Trump has signed the Paycheck Protection Program (PPP) legislation known as the PPP Flexibility Act (PPPFA). The bipartisan bill makes several changes to the PPP loan program:
- Extension of the “covered period” from 8 weeks to 24 weeks or December 31, 2020 — whichever comes first. This allows companies more time to spend funds on the qualified expenditures that are required for forgiveness.
- Current borrowers can choose to keep the eight weeks or extend.
- New borrowers will automatically have the 24-week covered period.
- Requirement for businesses to use 60% of the loan proceeds for payroll costs, down from 75%.
- This addresses concerns of employees not able to return to work due to child care or other complications.
- It also allows companies who had been closed for part of the covered period.
- Now, up to 40% of non-payroll costs may be included in the forgiveness calculation.
- If a borrower uses less than 60% 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% of the loan forgiveness amount having been used for payroll costs.
- For PPP funds that do not qualify for forgiveness, the loan maturity has been extended from two to five years. This gives companies more time to pay back funds, although the interest rate remains at 1%.
- The deadline to rehire workers has been pushed back to December 31, 2020 from June 30.
- This new law adds exceptions for reduced FTE’s. A business can still receive forgiveness if:
- There is an inability to rehire an individual who was an employee on or before February 15, 2020
- Is able to document an inability to hire a similarly qualified employee on or before December 31, 2020, or
- Is able to document the inability to return to the same level of business activity the business enjoyed prior to February 15, 2020.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, even after the business is approved for loan forgiveness, which was prohibited under the CARES Act.
This new act addresses many of the issues with the PPP loan, but it still does not address others. We expect the SBA will issue a new application, along with additional guidance. Stay tuned for updates.