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Published June 12, 2020

Cliff Rescue: SBA Signals Clarity for PPP Flexibility Act of 2020

Disclaimer: This article does not constitute and cannot be relied upon as legal, tax, accounting, banking, financial, or any other form of professional or other advice. To the best of our knowledge, this information was correct at the time of publication. Given the rapidly developing situation, and with the possibility of new guidance being issued at any time, be aware that some or all of this information may change. Please visit PYA’s COVID-19 hub frequently for the latest updates, as we are working diligently to put forth the most current information as it becomes available.

While intended to grant small business borrowers greater flexibility for those utilizing the Paycheck Protection Program (PPP), the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act), signed into law on June 5, 2020, actually created an unforeseen hazard that could have easily resulted in a misstep for borrowers—and a total denial of complete loan forgiveness.


The PPP was enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was amended April 24, 2020, by the Paycheck Protection Program and Health Care Enhancement Act. The PPP Flexibility Act contains further changes to the law.

The “Cliff”

The PPP Flexibility Act extended the maximum loan forgiveness “covered period” from 8 weeks to 24 weeks (or December 31, 2020, whichever is earlier) and decreased the minimum proportion of loan proceeds required to be used for payroll costs from 75% to 60%. Upon closer reading, however, the language of the PPP Flexibility Act revealed bad news—a “cliff” for borrowers. If the required minimum payroll cost use of 60% was not met, it would result in denial of any loan forgiveness. This was a stark change from pre-PPP Flexibility Act guidance—even the PPP Loan Forgiveness Application allowed loan forgiveness to be granted on a proportionate sliding scale basis if the prior 75% minimum payroll cost threshold was not met.

Rescue Measures

To rescue borrowers from falling off this loan forgiveness cliff, the Treasury Secretary and SBA Administrator issued a joint statement (Statement) June 8, announcing that the SBA will soon promulgate rules (PPP Flexibility Act Rules) eliminating the cliff and reinstating the loan forgiveness sliding scale with respect to the 60% payroll costs threshold. Making good on the Statement’s promise, elimination of the cliff and sliding scale loan forgiveness treatment for the 60% payroll cost threshold became law when the SBA issued the first of the PPP Flexibility Act Rules on June 11, 2020 (Rules). The Statement also listed other modifications to prior guidance that will be contained within the PPP Flexibility Act Rules, including the following items, the first three of which are included in the first Rules:

  • The extension of the maximum loan forgiveness covered period from 8 weeks to 24 weeks after the date of the first disbursement of PPP loan proceeds to the borrower.
  • The extension of the borrower repayment deferral period, which will now end on the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or, if loan forgiveness is not applied for, 10 months after the end of the borrower’s loan forgiveness covered period).
  • The extension of PPP loan maturity to five years for PPP loans that are approved by the SBA on or after June 5, 2020, (note that for PPP loans approved by the SBA before June 5, 2020, the PPP Flexibility Act states that lenders and borrowers can mutually agree to modify the maturity to be five years).
  • The new safe harbors from reductions in loan forgiveness based on reductions in full-time equivalent employees:
    • For borrowers unable to return to the same level of business activity at which the business was operating before February 15, 2020, due to compliance with worker or customer COVID-19 safety requirements, or guidance issued between March 1, 2020, and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration; and
    • For borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and are unable to hire similarly qualified employees for unfilled positions by December 31, 2020.

Deadline and More Changes on the Horizon

It is important to note June 30, 2020, (rather than December 31, 2020) remains the last date on which a PPP loan application can be approved. In addition to issuing the PPP Flexibility Act Rules, the Statement also announced that the SBA will soon issue modified PPP loan application and loan forgiveness application forms because of the changes to the PPP resulting from the PPP Flexibility Act.

PYA will be helping our clients with the PPP loan and loan forgiveness application processes for small business PPP loans. If you need assistance or would like additional COVID-19 guidance, visit our COVID-19 hub, or contact one of our PYA executives below at (800) 270-9629.

*Disclaimer: The information above is only a non-exhaustive summary of select aspects of the CARES Act as amended; the full text of the original CARES Act can be read here.

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