The Paycheck Protection Program Flexibility Act of 2020 (“PPP Flexibility Act”) makes borrower friendly changes to the Paycheck Protection Program created under the CARES Act. All changes listed below apply to existing and new loans unless otherwise indicated. Borrowers should contact their lenders to ensure that these loan modifications are made and that the changes are documented in writing.
Payroll Taxes: Previously, PPP Loan borrowers were excepted from the employer friendly payroll tax deferral plan under the CARES Act. Now, PPP Loan borrowers may defer deposit and payment of the employer portion of their federal payroll taxes for the remainder of 2020. Borrowers must deposit and pay 50% of any deferred amount by December 31, 2021. The remaining deferred amount must be deposited and paid by December 31, 2022.
Loan Term: The PPP Flexibility Act modifies PPP Loan terms to be a minimum of 5 years. The maximum duration of a PPP Loan is still 10 years. Lenders and borrowers may agree to a loan term that is less than 5 years or more 10 years, but the agreement must be mutual. This new term minimum only applies to loans entered into on or after June 5, 2020.
Total Use Period: PPP Loans may now be used to pay for allowable costs incurred between February 20, 2020 and December 31, 2020, extended from the original expiration date of June 30, 2020.
Forgivable Use Period: The PPP Flexibility Act extends the time period for which borrowers may seek loan forgiveness from an 8-week period to a 24-week period, or until December 31, 2020, whichever is earlier (Forgivable Use Period”). As such, borrowers may receive forgiveness in the amount that the borrower spent for applicable costs over a 24-week period. As with the previous 8-week rule, this 24-week time period commences when the loan is originated. PPP Loan borrowers, who already had a PPP Loan prior to the PPP Flexibility Act, may elect to stay with the 8-week time period. Borrowers who wish to extend their Forgivable Use Period, should contact their lender.
Forgivable Expenses: Borrowers must use at least 60% of loan proceeds on their payroll costs and may use up to 40% for other allowable costs, including mortgage interest, rent, and utilities. This new rule modifies the SBA Guidelines which required 75% of loan proceeds to be used on payroll.
Workforce Reduction: Borrowers may now receive full loan forgiveness even if their workforce is reduced. The borrower must document a good faith inability to (a) rehire employees or find qualified replacements or (b) return to full capacity because the employer is observing health guidelines or social distancing restrictions. Previously, borrowers’ loan forgiveness amount was to be reduced in a prorated amount equal to any workforce reduction.
Deferment Period: The deferral period for repaying PPP Loans is redefined from 6 months by SBA Guidelines to be the time period starting at loan origination and ending when the lender receives notice from the SBA of the amount of the loan that is forgiven. For most borrowers, this means a longer deferral period, but check with your lender.
Failure to Apply: All applications for loan forgiveness must be submitted no later than 10 months after the Forgivable Use Period ends.
