The Senate unanimously approved the Paycheck Protection Program (PPP) Flexibility Act of 2020 (H.R. 7010) this week, which will bring significant changes to the terms of the loan program.The bill will provide relief for borrowers as many have been unable to reopen their businesses in the period of time initially expected due to the continuation of the COVID-19 pandemic.
As a quick refresher, the PPP is new loan package available to small businesses that was created as part of the CARES Act. Based on the initial terms of the program, small businesses (generally under 500 employees) were able to receive forgiveness on loaned amounts that were used to pay for payroll costs, mortgage interest, rent, and utilities over the 8-week period following the date funding was received. Additional restrictions on forgiveness were announced following the opening of the program on April 3rd, and it appeared that many businesses would be forced to pay back significant portions of their loaned amounts unless additional changes were made to the program.
The PPP Flexibility Act will greatly increase the likelihood that a borrower's full PPP loan will be forgiven. The most notable change is the extension of the "covered forgiveness period" for business to use loan proceeds for eligible expenses from 8 weeks to 24 weeks (or December 31, 2020 if earlier) from the date of loan origination. Additional significant changes are provided below.
- Extension of the covered forgiveness period from 8 weeks to 24 weeks (or December, 31, 2020 if earlier)
- Increase in the percentage of forgivable expenses eligible for non-payroll costs (mortgage interest, rent, utilities) from 25% to 40%
- Note: 60% of loan proceeds must now be spent on payroll costs to be eligible for forgiveness
- Extension of the period of time available to restore the number employees and wage rates to pre-pandemic levels from June 30, 2020 to December 31, 2020
- Note: Loan forgiveness is reduced if employees do not restore pre-pandemic employee staffing levels and wage rates, unless employees voluntarily resign or choose to not return
- Note: Loan forgiveness is reduced if employees do not restore pre-pandemic employee staffing levels and wage rates, unless employees voluntarily resign or choose to not return
- Allows for a new safe harbor provision that removes the FTE reduction factor applied to forgiveness if borrowers can document the inability to hire qualified employees for unfilled positions or the inability to restore staffing levels due to compliance with issued safety guidance for customers and workers
- Businesses are now eligible to receive PPP loan forgiveness and also defer employer payroll taxes into 2021 and 2022
- Extension of the loan term from 2 years to 5 years for any portion of the PPP loan that is not forgiven
- Note: The 5-year loan term will apply to new loans and existing loans could be updated to reflect the new maturity date with agreement of the lender
While the PPP Flexibility Act will bring favorable changes to borrowers, several questions remain on forgiveness application process. Our team will be hosting a webinar on June 10th at 2:00 PM CT to discuss the changes to the program, planning opportunities for maximizing forgiveness, and the details associated with completing the forgiveness application. We encourage you to register and join us by clicking the link below.
When: Jun 10, 2020 02:00 PM Central Time (US and Canada)
Topic: PPP Flexibility Act & Forgiveness Planning
Register in advance for this webinar: https://us02web.zoom.us/webinar/register/WN_vEVx6JHQR0GAgy_PBeBBCg
If you are unable to join the webinar but would like more information on the PPP updates, please do not hesitate to contact our office. Our team is here to help.
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