Congress has passed the Paycheck Protection Flexibility Act with many new provisions that will make it easier for borrowers to obtain forgiveness. The Act (H.R. 7010) addresses many concerns expressed by recipients of PPP funds regarding challenges in meeting the forgiveness criteria. While the Act has yet to reach the President's desk, there are many anticipated changes which are summarized below.
- PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. This flexibility should make it easier to reach full, or almost full, forgiveness.
- Under the House bill, 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. Rep. Chip Roy (Texas), who co-sponsored the bill in the House, said that the bill intended the sliding scale to remain in effect at 60%. Technical tweaks could be made to the bill to restore the sliding scale.
- 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.
- 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 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 new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
- Borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was not allowed under the CARES Act.
We anticipate additional instructions for borrowers and lenders as well as modifications to the PPP Loan Forgiveness Application that was released on May 15, 2020. We will provide additional guidance as we have it and, as always, we are available to help clients navigate the changing legislation.