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PPP Flexibility Act

The Payroll Protection Program (“PPP”) has helped many small businesses survive around the country by providing funding for payroll and some other operating costs.  We were just beginning to receive clarification regarding some portions of the “Forgiveness” application from the SBA when significant changes were made. A bipartisan bill (The Paycheck Protection Program Flexibility Act of 2020) has recently passed and has been signed by the president. Now, the PPP program is more flexible and business friendly. Here are some of the provisions.

Maturity Date Extended

The PPP program is actually a forgivable loan. By maintaining the number of people in the workforce, and their level of pay, an employer may qualify for full forgiveness. For amounts not forgiven, the program provided for a 2-year loan at 1% interest. Now, the maturity date has been pushed back to at least 5 years for loans made after enactment. However, lenders and borrowers may mutually agree to modify existing PPP loans to extend the 2-year maturity date.

Extension of Time for New Loans

Previously, applications for PPP funding was to expire June 30, 2020. Now, businesses have until December 31, 2020 to apply for a PPP loan. NOTE: Treasury subsequently clarified that June 30, 2020 is the last day on which a PPP loan application can be approved.

Covered Period increased to 24 Weeks.

Borrowers had 8 weeks to spend loan proceeds for qualified expenses following the receipt of loan proceeds. Generally, in order to qualify for full forgiveness, employers had to spend at least 75% of the funding for payroll costs and 25%, or less, for certain non-payroll costs – all within the 8-week timeframe. This has been expanded to 24 weeks, thus giving employers significantly more time to pay expenses. (Borrowers are permitted to choose the originally authorized 8-week period.)

Non-payroll Limit Increased to 40% of the Loan Amount

Previously, for full forgiveness, 75% of the loan proceeds were required to be spent on payroll costs. Now, that limit has been reduced to 60%, thus allowing employers to spend up to 40% on non-payroll costs such as utilities, rent payments, and mortgage interest. NOTE: Without a “technical correction,” this bill would not allow for ANY loan forgiveness unless 60% of the proceeds are spent for payroll costs.

More time Before Payments Begin

Payments on loan amounts were scheduled to begin 6 months following the receipt of loan proceeds. The PPP Flexibility Act delays the first payment until the forgiveness process is complete and the lender is paid by SBA. (Borrowers now have 10 months after the 24-week covered period to apply for forgiveness.)

Restoration of Work Force Extended to December 31, 2020

A reduction in loan forgiveness can be caused by reducing an employee’s salary or by reducing the workforce. The program provided the opportunity to restore those shortfalls by June 30 to avoid a reduction in forgiveness. This new “Act” allows more time by moving the restoration date from June 30 to December 31, 2020. (Also, new relief was added where employers were able to document their inability to hire unfilled positions by December 31, 2020.)

Allows Deferment of Some Payroll Taxes

Previously, PPP loan recipients were not allowed to defer the employer’s portion of their OASDI tax payments (6.2%). Now, those taxes may be deferred as follows for payrolls beginning March 27, 2020 – December 31, 2020.

  • 50% is due December 31, 2021
  • Remaining 50% is due December 31, 2022

These revisions will necessitate revisions of the SBA Forgiveness Application and Instructions.

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