The Paycheck Protection Flexibility Act Brings Changes to the Program
Late on Wednesday, June 3, the Senate passed the Paycheck Protection Flexibility Act. The version which passed through the House of Representatives last week was unchanged by the Senate. The changes are largely favorable to borrowers under the PPP Loan Program, but pay close attention to the following revisions to the original conditions set forth under the CARES Act:
- For any loans issued after the bill is enacted into law, a forgiveness period (“Covered Period”) of 24 weeks will apply. For borrowers with PPP loans pre-dating the bill’s enactment, you may choose between the original 8-week Covered Period and the newly available 24-week Covered Period.
- Borrowers using the 24-week Covered Period must restore FTE and wage level metrics to their February 15, 2020 figures by December 31, 2020 (previously, and still applying to 8-week Covered Periods, June 30, 2020).
- Maximum forgiveness amounts of 100% may be achieved by spending 60% of PPP funds on Payroll Costs (defined term set forth in the CARES Act) rather than the preexisting 75% watermark. In other words, the new maximum forgiveness amount calculation is 5/3 of the amount spent on Payroll Costs during the Covered Period (previously, 4/3). Note, however, that this lower threshold is now an all-or-nothing Mendoza Line which a borrower must reach or surpass in order to benefit from any PPP forgiveness.
The following are additions and modifications to the reduction factors which may reduce a borrower’s otherwise maximum forgiveness amount:
- Inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
- Document an inability to return to the same level of business activity as of February 15, 2020 due to compliance with requirements or guidance issued for the period from February 15, 2020 through December 31, 2020 related to sanitation, social distancing, or other health and safety requirements related to COVID-19 from one or more of the following: (a) The Secretary of Health and Human Services (HHS); (b) Director of the Centers for Disease Control (CDC), and; (c) Occupation Safety and Health Administration (OSHA).
- The application deadline has moved from June 30, 2020 to December 31, 2020. At this time, approximately $120 billion remain available for PPP loans to qualified employers.
- Loan terms have been extended from 2 years to 5 years, and the interest rate remains at 1%.
- Borrowers may access payroll tax deferment options, although this still likely excludes the Employee Retention Credit for PPP recipients.
Borrowers should be sure to fully understand the newly updated rules and regulations to best determine and manage the maximum PPP Loan forgiveness. Depending on each borrower’s situation and set of facts, one of the two Covered Periods will prove more advantageous.
Just this Monday, June 8, the SBA hinted at additional new guidelines and a revamped and simplified loan forgiveness application. If you were confused or overwhelmed by the first look at the initial form of the 12-page forgiveness application released in late May, you were not alone. In fact, you won’t need to worry for much longer, as we expect the modified form to be released shortly. Once the new rules and the updated form are made public, we will revise this post and notify our partners and clients as soon as possible
If you have any questions, or if you require assistance with your PPP Loan application or forgiveness application, please let us know. We have a Coronavirus Task Force ready to help.