PPP Flexibility Act Changes Loan Forgiveness Rules
On Friday, June 5, President Trump signed the Paycheck Protection Program (PPP) Flexibility Act of 2020 (HR 7010) into law, loosening restrictions on PPP loans made to businesses struggling in the wake of the coronavirus pandemic.
The new law makes the following key adjustments to the PPP loan forgiveness requirements:
Old PPP Provision: Loan proceeds must be used within 8 weeks of loan origination (the “covered period”) to be forgiven.
New PPP Provision: Loan proceeds must be used within 24 weeks of loan origination (but no later than Dec. 31, 2020) to be forgiven. Borrowers that received loans prior to June 5, 2020, may elect to use the original 8-week covered period.
Old PPP Provision: 75 percent of forgiveness amount must be used for payroll costs (and the remaining amount may be used on mortgage interest, rent and utilities).
New PPP Provision: 60 percent of forgiveness amount must be used for payroll costs (and the remaining amount may be used on mortgage interest, rent and utilities).
Old PPP Provision: Forgiveness amount will be reduced proportionate to the reduction of full-time equivalent (FTE) employees during the covered period compared to the average number of FTE employees per month during a reference period selected by the borrower (February 15, 2019–June 30, 2019 or January 1, 2020–February 29, 2020; or for seasonal employers, February 15, 2019–June 30, 2019).
Forgiveness amount will also be reduced by the amount of any reduction in any employee’s salary that is more than 25 percent of the employee’s total salary/wages for the January 1, 2020–March 31, 2020, period, if the employee did not receive annualized compensation of $100,000 or more in any pay period in 2019.
Safe harbor: Forgiveness amount will not be reduced if the business eliminates employee or salary reduction(s) by June 30, 2020.
New PPP Provision: Safe harbor: Forgiveness amount will not be reduced if the business eliminates employee or salary reduction(s) by December 31, 2020.
Exception based on employee availability: Forgiveness amount will not be reduced based on a reduction of FTE employees if the business can document that the reduction was due to business’s inability to:
- Rehire individuals who were employees on February 15, 2020, and hire similarly qualified employees for unfilled positions by December 31, 2020; or
- Return to the same level of business activity at which the business was operating prior to February 15, 2020, due to compliance with sanitation, social distancing, or any other worker or customer safety requirement related to Covid-19 imposed by the Secretary of Health and Human Services, the CDC, or OSHA during the period between March 1, 2020, and December 31, 2020.
Old PPP Provision: 2-year loan maturity date
New PPP Provision: 5-year loan maturity date for:
- All loans made on or after June 5, 2020; and
- Loans made earlier than that date, if both lender and borrower agree.
Old PPP Provision: Deferral of payments of principal, interest and fees for between 6 months to one year.
New PPP Provision: Deferral of payments of principal, interest and fees until SBA remits the borrower’s loan forgiveness amount to the lender.
If a borrower fails to apply for forgiveness within 10 months after the last day of the covered period, the borrower must make payments of principal, interest and fees beginning no earlier than 10 months after the end of the covered period.
Old PPP Provision: Businesses receiving PPP loan forgiveness do not qualify for deferral of payroll taxes under the CARES Act.
New PPP Provision: Businesses may receive deferral of payroll taxes and PPP loan forgiveness under the CARES Act.
Guidance on the PPP loan program continues to evolve and further guidance and regulations clarifying the PPP Flexibility Act are forthcoming. We will provide updates on new developments as soon as possible.
This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact RPJ Attorney Elizabeth Stork, who counsels both companies and individuals on employment matters. Ms. Stork is admitted to practice law in New York. Attorney Advertising.