President Trump has signed in law the Paycheck Protection Program Flexibility Act. This bill substantially changes the restrictions and required use of funds of the Paycheck Protection Program loans. This bill provides borrowers the opportunity to elect a substantial longer time frame to use funds for forgiveness, up to 24 weeks, and extends the program through the end of 2020.
The new law specifically changes the following terms of the loans:
- Current PPP borrowers can elect to extend the eight-week forgiveness period to 24 weeks. New PPP borrowers will have a 24-week covered period, as long as that period does not extend beyond December 31, 2020.
- Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75%, and is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, and forgiveness isn’t eliminated if the 75% threshold isn’t met.
- The deadline for restoring workforce levels to pre-COVID 19 levels was changed from June 30, 2020 to December 31, 2020.
- There are two additional exceptions to allow borrowers to achieve full PPP loan forgiveness if they can’t fully restore their workforce due to inability to find qualified employees or inability to restore business operations to February 15, 2020, levels due to COVID-19 related operating restrictions.
- PPP loans entered into prior to this legislation can be extended to five years, if mutually agreed upon by borrower and lender. All new PPP loans will have a maturity of five years. The interest rate remains at 1%.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes through the forgiveness period and beyond. Under previous legislation deferral was required to cease at the time of loan forgiveness.
Some items the bill did not address that we are still awaiting guidance or changes include:
- The tax deductibility of expenses used for PPP loan forgiveness. This was introduced in a separate bill in the Senate and has yet to be voted on.
- The forgiveness calculation for self-employed individuals.
- If the extended period also increases the maximum compensation that can be used for certain highly compensated individuals.
- Definitions of other expenses including “utilities.” Mitchell Wiggins feels with the significant extension of the payroll period, that the majority of borrowers will be able to satisfy the forgiveness using payroll related costs, making these other expense uncertainties less of an impact.
To access our email updates regarding the CARES Act and the PPP loan program, visit our archives.