Paycheck Protection Flexibility Act

President Trump signed the bipartisan Paycheck Protection Flexibility Act (the “Act”), Friday, June 5, 2020. The Act significantly changes the Paycheck Protection Program (“PPP”). Below is a list of the most significant changes made by the Act.

Forgiveness Period
  • PPP Borrowers can now extend the term during which the PPP funds can be spent from 8 weeks to 24 weeks, or borrowers can keep the original 8-week period within which to spend the PPP funds—allowing borrowers to increase the amount of their loan that can be forgiven.
Payroll Requirement
  • The Act reduces the percentage of the PPP loan that must be spent on payroll from 75% to 60%. The other 40% can be spent on interest on mortgages, covered rent, and covered utilities.
Restore Workforce Level and Wages
  • Borrowers now have until December 31 (as opposed to the previous deadline of June 30) to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness.

New Exceptions to Restoring Workforce
  • The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good-faith offers to be rehired. The new Act will enable borrowers to exclude employees because they could not find qualified employees or be unable to restore business operations to February 15, 2020, levels due to COVID-19 related operating restrictions, such as social distancing or other safety requirements related to COVID-19.
Loan Maturity
  • Repayment of existing PPP loans can be extended up to 5 years (from the current two years) if the lender and borrower agree. The interest rate remains at 1%.
Forgiveness Application
  • If you do not apply for loan forgiveness within ten months after the last day of your covered period (i.e., your eight weeks or your 24 weeks from the date you received the loan), you must start paying back principal and interest on the loan.
The Breakdown
  • After choosing the 24 weeks to spend the PPP funds, the maximum amount paid per employee jumps from $15,385 to approximately $45,000, making it likely that the vast majority of the PPP funds will be spent on payroll. Additionally, the forgiveness application will have to change based on the extended time frame to spend the funds and the additional amounts that can be spent on non-payroll expenses.

Sources: SBA Government

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