Big Changes Are Coming to the Paycheck Protection Program
On June 3, the U.S. Senate passed the House version of the Paycheck Protection Program Flexibility Act (PPPFA), giving small businesses more time and flexibility to use their PPP loans with the aim of maximizing loan forgiveness. The Senate approval sends the PPPFA to President Donald Trump, who is expected to sign it.
Perhaps the most significant change the PPPFA makes to the PPP is to extend the 8-week “covered period” during which borrowers were, under the PPP, required to use their loan proceeds to a much longer 24-week period. The PPPFA also changes the requirement that 75% of loan proceeds must be spent on “payroll costs” to a 60% requirement.
The following are the key aspects of the PPPFA:
- Borrowers who have already received their PPP loans can choose to extend the 8-week period to 24 weeks, or they can keep the original 8-week period. New PPP borrowers will have a 24-week covered period, but the covered period cannot extend beyond December 31, 2020.
- The requirement that borrowers spend a certain percentage of the loan proceeds on “payroll costs” drops to 60% from 75%.
- The PPPFA extends, until December 31, 2020, the current June 30, 2020 “safe harbor” deadline for borrowers to rehire employees and reverse salary cuts of greater than 25 percent.
- The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they do not fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The PPPFA will also exempt borrowers from the proportional reduction in loan forgiveness due to a reduction in employees, if the borrower is able to document in good faith that for the period of February 15 to December 31, 2020, the borrower was unable to:
- Rehire employees who had been employed on February 15, 2020, or hire similarly qualified employees for unfilled positions by December 31, 2020; or
- Return to the same level of business activity at which the borrower was operating before February 15, 2020, due to compliance with federal requirements or guidance set forth between March 1 and December 31, 2020, relating to standards of sanitation, social distancing, or other worker or customer safety requirements related to COVID-19.
- New borrowers now have 5 years to repay the loan instead of 2. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
- The bill allows PPP loan borrowers to also delay payment of their payroll taxes, which had been prohibited under the CARES Act.
While these changes should be welcomed by borrowers seeking more flexibility to use their PPP loans, they further complicate an already complicated program. We are here to help. If you have questions about your PPP loan, please do not hesitate to contact us for assistance.