Paycheck Protection Program Flexibility Act of 2020
President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (Act) today tripling the time allotted for small businesses and other Paycheck Protection Program (PPP) loan recipients to spend the funds and still qualify for forgiveness of the loans.
No immediate action is required for current PPP borrowers. Current borrowers can choose to extend the 8-week period to 24 weeks, or they can keep the original 8-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
Under the language in the Act, the payroll expenditure requirement drops to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met.
The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The Act allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Febuary 15, 2020, levels due to COVID-19 related operating restrictions.
New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
The Act allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
Thank you for your trust in Hoskins & Company during these unusual circumstances. If you have any questions or concerns, please do not hesitate to contact the team member you are currently working with. If you are interested in assistance with the PPP application or loan forgiveness, please submit an inquiry form or call (615) 321-7333.
Deidre Thomas | 06/05/2020