Flexibility Act Modifies PPP Loan Terms for Borrowers

June 19, 2020|

Congress passed the Paycheck Protection Program Flexibility Act of 2020, (“PPP Flexibility Act”) on June 5, 2020, to give employers more flexibility relating to the forgiveness of loans under the Paycheck Protection Program (“PPP”).

Fundamental Changes Made Under the PPP Flexibility Act:

The Act included many adjustments to the original PPP loan program enacted as part of the CARES Act, including:

  • The PPP Flexibility Act extended the covered period of a PPP loan to run from February 15, 2020, to December 31, 2020, (an increase from 8 weeks to 24 weeks starting from the loan origination date), if the obligation began before February 15, 2020.
  • The loan maturity rate for any new PPP loan increased from 2 years to a minimum of 5 years, giving borrowers an extended amount of time to maximize loan forgiveness (applicable only to loans issued after June 5, 2020).
  • The Act reduced payroll spending and employee benefits costs from 75% to 60% and allowed 40% to be spent on rent/lease payments, mortgage interest, and utility payments.
  • Extended deferral of both loan forgiveness and payroll tax payments permitted even if the business has taken out a PPP loan.
  • Extended timeline to rehire employees who were laid off or put on leave at the beginning of the period. Originally under the CARES Act safe harbor, a PPP borrower can avoid having their loan forgiveness amount reduced even if the borrower has a significant decrease in employment and/or wage levels after February 15, 2020. The PPP Flexibility Act amends the provision of the original safe harbor, which originally stated that if a borrower restores those levels by June 30, 2020, its loan forgiveness amount will not be reduced. The PPP Flexibility Act extended that date to December 31, 2020.

Who Qualifies?

Any small business with 500 employees or fewer is eligible to access the loans through the Small Business Administration (SBA). This includes any small business, sole proprietorships, independent contractors, and self-employed individuals seeking to use loans for payroll and operating costs experiencing business disruption due to the COVID-19 pandemic.

How Can My Loan Be Forgiven?

In addition to allocating 60% of spend on payroll, any small business can achieve loan forgiveness by committing to an average (or above average) monthly number of full-time employees (this includes rehiring workers who have been laid off).

Be Advised

  • The deadline to apply for a PPP loan was extended to August 8, 2020.

Additional Resources

Businesses have many considerations when applying for a PPP loan and forgiveness and should seek guidance from their business finance consultant to determine the best course of action. You can find further legislative information on the PPP Flexibility Act here.

This post was updated on July 31, 2020, to reflect the new PPP loan deadline.

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