On June 4, 2020, Congress passed a bill called the PPP Flexibility Act of 2020, which amended the federal Paycheck Protection Program (“PPP”). The PPP was instituted in April to boost small businesses in the wake of the COVID-19 pandemic by offering forgiveness-eligible loans to businesses, contingent upon the satisfaction of n requirements. The PPP Flexibility Act was passed to make it easier for businesses to qualify for PPP loan forgiveness by providing additional benefits and/or exemptions to borrowers. The most critical changes to the PPP under the PPP Flexibility Act are as follows:
- Loan forgiveness is contingent on the borrower’s maintenance of pre-loan employee headcounts (i.e. full-time equivalents or “FTE”) and salary levels.
- The deadline for meeting these requirements has been extended from June 30, 2020 to December 31, 2020.
- The PPP required 75% of PPP loan funds to be allocated to payroll, and the remaining 25% to mortgage interest, rent, and utilities.
- Under the PPP Flexibility Act, only 60% of PPP funds must be spent on payroll, and the remaining 40% of PPP funds may be spent on mortgage interest, rent, and utilities.
Eligible Spending Period
- The eligible spending period to use PPP funds has been extended from 8 weeks to 24 weeks, beginning when the borrower receives the first installment of PPP funds.
- However, the eligible spending period has not been extended beyond December 31, 2020, so any loans granted in the second half of the year will not benefit from a 24-week spending period.
- Deferred repayment of a PPP loan has been extended from 6 months after the end of the covered period to the date the Small Business Administration (“SBA”) provides the forgiveness amount to the lender. The arbitrary 6-month deferment period has been replaced with a repayment program which begins after a forgiveness determination has been made.
- After the end of the covered period, the company has up to 10 months to apply for forgiveness, after which time payments will be required, effectively granting a. 10-month payment deferment period for borrowers who do not apply or qualify for loan forgiveness.
Deferred Payroll Taxes
- Employer payroll taxes will be deferred until December 31, 2020.
- Payroll taxes were previously due immediately upon forgiveness from the SBA, but under the PPP Flexibility Act, employers have until the end of the year to pay payroll taxes.
- The loan duration for PPP loans approved before June 5, 2020 may be extended to 5 years in cases where the borrower and lender agree to the extension. Any loans approved on or after June 5, 2020 will automatically extend over 5 years.
- Interest rate was not changed from 1% annual rate originally set forth in the PPP.
- The application deadline for a PPP loan has not been extended, and all applications must be received by June 30, 2020.
If you have applied for or received a PPP loan, or believe that you may be eligible to receive one, do not hesitate to contact Kuiper Law Firm PLLC to discuss how we may be able to assist you.