Paycheck Protection Program Flexibility Act: What Small Businesses Need to Know

A new bill that provides flexibility for the Paycheck Protection Program (PPP) was signed by President Trump on June 5, 2020. The Paycheck Protection Program Flexibility Act includes several changes to help small businesses that have received PPP loans.

Here are highlights of the Paycheck Protection Program Flexibility Act.

Extension of the covered period from eight weeks to 24 weeks

PPPExisting borrowers have the option to keep the eight-week period or use the 24-week covered period. New borrowers will receive 24-week covered period from the date of the loan’s origination, or December 31, 2020, whichever comes earlier.

Principal and interest payments are also deferred until the date the lender receives the forgiveness amount from the SBA. If a borrower does not apply for loan forgiveness within 10 months following the end of the covered period, the deferral period will end on the date that is 10 months after the last day of the covered period.

Expenditure requirements

The payroll expenditure requirement reduces to 60% from 75%, with the other 40% for non-payroll costs such as rent.

6/10 Update:  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.

More time to repay PPP loans

New borrowers have five years to repay the loan instead of two. For existing loans, if the lender and borrower agree, the repayment of the loan can be extended up to 5 years.

Extension of the deadline to restore the borrower’s workforce levels and wages to the pre-pandemic levels required for full forgiveness from June 30 to December 31, 2020.

New exceptions for businesses that are unable to fully restore their workforce

Small businesses that are unable to fully restore their workforce can still achieve full PPP loan forgiveness. For the period of February 15, 2020 to December 31, 2020, the amount of loan forgiveness will not be reduced if the borrower experiences a reduction in full-time equivalent (FTE) employees due to:

1) employees that turned down good faith offers to be rehired at the same hours and wages

2) inability to hire similarly qualified employees before December 31, 2020

3) unable to return to the same level of business operations from before February 15, 2020 due to COVID-19 related operating restrictions during the period of March 21, 2020 to December 31, 2020.

In addition, if a borrower restores its FTE headcount and wages to its Feb. 15, 2020, levels by the end of 2020, no reduction in forgiveness will apply.

Defer payroll taxes

Small businesses that receive a PPP loan can defer all of its 2020 Social Security tax burden into 2021 and 2022, even if the PPP loan is forgiven prior to December 31, 2020.

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