The Paycheck Protection Program Flexibility Act Makes Critical Changes to the Paycheck Protection Program

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) was signed into law.  The PPPFA is aimed at providing borrowers with additional flexibility to maximize forgiveness of loans received under the Paycheck Protection Program (“PPP”) established as part of the CARES Act.  The following provisions of the PPPFA are highlighted below for your consideration:

  • Extension of Application Period:  The PPPFA extends the final date by which PPP loans can be made from June 30, 2020 to December 31, 2020.  However, a congressional letter clarifies that June 30, 2020 remains the last day for accepting and approving PPP loans.  Although additional guidance may be issued on whether applications will be accepted until December 31, 2020, employers should err on the side of caution and apply for loans prior to June 30, 2020.
  • Repayment Term is Extended:  For those PPP loans originated on or after the date of enactment of the PPPFA, the repayment term for the unforgiven portion of the loan is extended from two to not less than five years.  However, borrowers and lenders may mutually agree to expand the repayment period under existing loans (entered into prior to enactment of the PPPFA).
  • Use Period is Extended: The period in which the PPP loan proceeds can be used is extended from eight weeks to twenty-four weeks from the date of origination, but may not be used later than December 31, 2020.  However, a borrower that received loan proceeds prior to the date of enactment of the PPPFA may still elect to end the covered period eight weeks from the date of origination of the loan.
  • Safe Harbor Date is Extended: The PPPFA extends the safe harbor date under the PPP during which borrowers must rehire and restore salary and wage levels from June 30, 2020 to December 31, 2020.
  • Additional Safe Harbors are Included: The PPPFA provides additional safe harbors, which allow borrowers to receive full loan forgiveness if they are able to show 1) a documented and good-faith inability to rehire individuals who were employees as of February 15, 2020 by December 31, 2020; or 2) a documented and good-faith inability to return to the same level of business activity as of February 15, 2020 due to the compliance requirements required by various federal agencies relating to employee safety requirements, including health and sanitation mandates and changes to behavioral protocols, like social distancing.
  • Statutory Requirement for Payroll Costs is Added:  The PPPFA codifies that at least 60% of the loan amount must be used for eligible payroll costs while 40% can be used for eligible mortgage interest, rent and utilities.  The Act further states that if a borrower fails to spend at least 60% of the loan amount on covered payroll expenses during the covered period, none of the loan will be forgiven.  Prior to the Act, if a borrower spent less than the 75% of the loan amount on covered payroll expenses, the borrower could still receive forgiveness on covered payroll expenses.
  • Delay of Deferral Period:  Under the PPP, the PPP’s loan principal and interest were to be deferred six months after the loan’s funding date.  Under the PPPFA, payment of the principal and interest on a PPP loan is delayed until the date on which the amount of forgiveness is remitted to the lender.  However, if a borrower does not apply for loan forgiveness within ten months after the last day of the covered period, the deferral period ends and the borrower must begin making payments of principal and interest to the lender on a date that is 10 months after the ending date of the forgiveness period.

Please contact our offices if you need assistance in navigating the provisions of this new Act.  Thank you.

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