Paycheck Protection Program Flexibility Act of 2020 

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On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act (“Flexibility Act”) which has changed certain aspects of the Paycheck Protection Program (“PPP”). The following is a summary:

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1. Extended “Covered Period”

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The Flexibility Act extends the “covered period” of the loan for forgiveness purposes from the current 8-week period to the earlier of 24 weeks from the date of PPP loan origination or December 31, 2020. Existing PPP borrowers can choose to keep the original 8-week period or to use the new extended period.

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2. Final Date to Apply Remains Unchanged

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The final date to apply for a PPP loan remains June 30, 2020.

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3. 60% for Payroll Costs for Forgiveness

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To be eligible for loan forgiveness, the borrower must now use 60% of the loan proceeds for payroll costs, as opposed to the 75% previously imposed by the SBA. Borrowers may use up to 40% of the loan amount for non-payroll costs (i.e., covered mortgage obligations, covered rent obligations and covered utility payments).

 

Note: The language of the Flexibility Act suggests that borrowers must spend at least 60% on payroll or no portion of the loan will be eligible for forgiveness however the SBA is expected to provide further guidance.

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4. Loan Payment Deferral Period

 

The 6-month deferral period before PPP loan payments are due now begins on the date of the PPP loan and ends on the date that the SBA remits the loan forgiveness amount to the lender. If a borrower does not apply for forgiveness within 10 months after the last day of the borrower’s covered period, the deferral period ends on the date that is 10 months after the last day of the borrower’s covered period.

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5. New Deadline of December 31, 2020 to Eliminate Headcount and Wage Reductions

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Borrowers now have until December 31, 2020 to eliminate reductions in headcount and salary or wages of employees and restore levels to pre-COVID levels.

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6. New Safe Harbor to Avoid Full-Time Equivalent Related Reductions

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During the period beginning February 15, 2020 and ending December 31, 2020, the amount of loan forgiveness will be determined without regard to proportional reductions in the number of Full-Time Equivalent employees if the borrower, in good faith, can document the following:

• (i) an inability to rehire employees who were employed by the borrower as of February 15, 2020, and (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or

• an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements and guidelines issued by the federal and state level health agencies during the period beginning on March 1, 2020 and ending on December 31, 2020, related to the maintenance of standards for sanitation, social distancing or other worker or customer safety requirements related to COVID-19.

 

7. Extended Maturity to 5 years for New PPP Loans

 

New PPP loans made after June 5, 2020 will have a minimum term of 5 years. The CARES Act originally provided for a maximum maturity of 10 years from the date on which the borrower applies for forgiveness. Borrowers with existing loans can mutually agree with their lenders to amend the loan documentation to provide for a 5-year term instead of a 2-year term (although there is no obligation imposed to do so).

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8. Payroll Tax Deferral

 

PPP borrowers who obtain loan forgiveness can now defer payment of their payroll taxes. Such deferral was originally prohibited under the CARES Act.