Paycheck Protection Program Flexibility Act of 2020 Enacted into Law

President Trump and Congress has now passed the Paycheck Protection Program Flexibility Act of 2020 with the Act passing the Senate by unanimous consent in the early evening hours of June 3, 2020. The Act changes several provisions in the original PPP loan program enacted as part of the CARES Act.

Key provisions of the bill:

• Change in Loan Maturity
• Covered Period Extension for a PPP Loan
• Deadline to Use the Loan Proceeds
• Requirement to Spend 60% of Loan Proceeds on Payroll Costs
• Safe Harbor for Rehiring Workers
• Payroll Tax Deferral

Change in Loan Maturity

The SBA had previously provided that PPP loans would have a 2-year maturity. Congress has now modified the law to provide that PPP loans will have a minimum maturity of 5 years. Lenders and borrowers are not required to modify loans to provide for a longer payment period, the law will allow such a modification to be made.

Covered Period Extension for a PPP Loan

The Act has modified the covered period in the PPP loan program to change the ending date from June 30, 2020 to December 31, 2020. The covered period in this section now runs from February 15, 2020 to December 31, 2020.

Deadline to Use the Loan Proceeds

The Act extends the “covered period” with respect to loan forgiveness from the original 8-week period after the loan is disbursed to the earlier of 24 weeks after the loan is disbursed or December 31, 2020. Current borrowers who have received their loans prior to the enactment of the Act may nevertheless elect the shorter 8-week period.

Requirement to Spend 60% of Loan Proceeds on Payroll Costs

The Act raises the cap on the amount of forgivable loan proceeds that borrowers may use on non-payroll expenses from 25% to 40%. The Act does not affect the PPP’s existing restrictions on borrowers’ use of the loan proceeds to eligible expenses: payroll and benefits; interest (but not principal) on mortgages or other existing debt; rent; and utilities.

Safe Harbor for Rehiring Workers

The Act extends the PPP’s existing safe harbor deadline to December 31, 2020: borrowers who furloughed or laid-off workers will not be subject to a loan forgiveness reduction due to reduced FTE count as long as they restore their FTEs by the deadline.

The Act also adds two exemptions to the PPP’s loan forgiveness reduction penalties:

1. The forgiveness amount will not be reduced due to a reduced FTE count if the borrower can document that they attempted, but were unable, to rehire individuals who had been employees on February 15, 2020 and have been unable to hire “similarly qualified employees” before December 31, 2020.
2. The forgiveness will not be reduced due to a reduced FTE count if the borrower, in good faith, can document an inability to return to the “same level of business activity” as prior to February 15, 2020 due to sanitation, social distancing, and worker or customer safety requirements.

Payroll Tax Deferral

The Act lifts the ban on borrowers whose loans were partially or completely forgiven from deferring payment of payroll taxes. The payroll tax deferral is now open to all PPP borrowers.

Next Steps

We now will wait for forthcoming guidance and clarity from the SBA and US Treasury on how these new provisions will modify the Loan Forgiveness process. Stay tuned as the Porte Brown PPP Team is following this closely and will have more information as it become available.

Questions?

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