On June 5, 2020, the Paycheck Protection Program (PPP) Flexibility Act of 2020 (PPP Flexibility Act) was signed into law. Key highlights of the changes made to the PPP by the PPP Flexibility Act include:
- The PPP Flexibility Act is retroactive to the date of the enactment of the PPP.
- The covered period for loan forgiveness purposes is extended beyond the original 8-week period to either 24 weeks after the loan origination date or December 31, 2020, whichever comes first.
- Borrowers may elect to use the shorter original 8-week covered period.
- The percentage of loan proceeds that must be used for payroll costs has been decreased to a minimum of 60% from the original 75% threshold.
- Please note that this version has the unfortunate effect of creating a “cliff” with respect to forgiveness.
- As currently written, if the Borrower is unable to demonstrate that at least 60% of proceeds were expended on payroll costs, none of the loan is forgiven.
- This cliff is in contrast to the original PPP provisions, which reduced forgiveness pro rata for the portion of the payroll costs less than the 75% threshold.
- Some Senators, recognizing this “unintended effect,” were initially reluctant to pass the legislation as written, but obviously set aside those concerns for the sake of expediency. However, those same Senators encouraged the Small Business Administration (SBA) to remedy the policy in its regulatory guidance, if possible.
- The allowable uses of PPP loan proceeds remain unchanged—payroll vs. nonpayroll costs.
- Repayment of PPP loans for which forgiveness is not obtained is extended to 5 years from 2 years.
- A new exemption from reduction in loan forgiveness for the reduction in full-time equivalent employees was added based on employee unavailability (as to rehires or similarly qualified new hires) or the inability of a Borrower’s business to return to the same level of business activity as it was operating before February 15, 2020.
- Employer payroll tax deferrals are available to all PPP borrowers through December 31, 2020, without regard to whether, or when, PPP loan forgiveness is granted.
If you need assistance with this topic 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: To the best of our knowledge, this information was correct at the time of publication. Given the fluid situation, and with rapidly changing new guidance issued daily, be aware that some or all of this information may no longer apply. Please visit our COVID-19 hub frequently for the latest updates, as we are working diligently to put forth the most relevant helpful guidance as it becomes available.