Paycheck Protection Program Flexibility Act Signed Into Law
On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act of 2020 (Act) into law, which modifies certain key aspects of the Paycheck Protection Program (PPP), a loan program administered by the Small Business Administration (SBA) pursuant to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
The following are some of the important changes to PPP loans and forgiveness provided by the Act:
• Current PPP borrowers may choose to extend the eight-week forgiveness period to 24 weeks, or they may choose to remain subject to the original eight-week period. New PPP borrowers receiving loans after the enactment of the Act will have a 24-week forgiveness period, however the forgiveness period cannot extend beyond December 31, 2020.
• The Act provides that, in order to have a PPP loan forgiven, a borrower must spend at least 60% of that loan on payroll costs. Importantly, the new 60% rule established by the Act applies retroactively to all PPP loans, not just those given after the Act’s enactment. The extension of the forgiveness period to 24-weeks could be useful in this context, to the extent a borrower still has loan proceeds available for further expenditures.
• Borrowers now have until December 31, 2020 (as opposed to the previous deadline of June 30, 2020) to restore their workforce levels and wages to the pre-pandemic levels and avoid a reduction in the forgiven amount.
• The Act establishes two exceptions allowing PPP borrowers to avoid a reduction in loan forgiveness even if they are unable to fully restore their workforce before the new December 31, 2020 deadline. Specifically, the Act allows a borrower to avoid a forgiveness reduction, notwithstanding its inability to restore workforce levels, if the borrower can document in good faith that it was unable to do so because it was either (a) unable to rehire or replace qualified employees or (b) unable to return its business operations to pre-pandemic levels due to compliance with COVID-19-related safety protocols or operating restrictions issued by the Secretary of Health and Human Services, Director of the Center for Disease Control and Prevention, or the Occupational Safety and Health Administration. The first exception listed above appears to supersede the SBA’s prior guidance allowing borrowers to exclude from the forgiveness reduction calculation former employees who turned down good faith written offers for rehire if certain conditions were met, and the second exception addresses circumstances which were not previously addressed by the SBA.
• Under the Act, new PPP borrowers now have five years to repay the loan instead of two years. PPP loans received prior to the enactment of the Act may be extended to up to 5 years only if the lender and borrower mutually agree. The PPP loans’ interest rate, however, remains unchanged at 1%.
• The Act allows PPP borrowers to defer payment of their payroll taxes under Section 2302 of the Cares Act, an advantage which was previously unavailable to PPP borrowers under the CARES Act as originally enacted in March 2020. Businesses can now use both the PPP and the payroll tax deferment provisions of the CARES Act if eligible for each respective program.
Based on the new legislation described above, it appears that borrowers are now afforded greater flexibility with respect to their PPP loan and forgiveness.
As always, Nason Yeager is here for you 24/7 to assist in any way we can. We hope everyone stays safe and healthy through these unprecedented times.