President Trump has now signed into law the Paycheck Protection Program Flexibility Act. Many recipients of the PPP funds were facing challenges meeting the loan forgiveness criteria due to continued restrictions and other factors resulting from COVID-19. The new Act tweaks many of the guidelines for loan forgiveness allowing more time for borrowers to incur eligible costs, as well as more time allowed to repay funds. As was previously communicated, we have again highlighted key aspects of the PPPFA below:
- The most notable changes in the PPPFA are to the loan forgiveness provisions of the PPP. The PPPFA extends the covered period such that PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period
- Under the PPPFA, 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. Previously, borrowers were required to reduce the amount eligible for forgiveness if less than 75% of eligible funds were used for payroll costs, but forgiveness wasn't eliminated if the 75% threshold wasn't met. Technical tweaks could be made to the bill to restore the sliding scale.
- Safe harbors have been added to the wage reduction provision. 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.
- The time-frame for repayment is extended allowing borrowers 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.
The PPPFA should help many businesses achieve loan forgiveness. The provisions relax the requirements and, as the name indicates, allows flexibility to business fund recipients that should make it easier to meet the criteria. As additional necessary fixes are identified, we anticipate additional guidance. We will continue to update you with such guidance and are available to answer any questions you may have.