On the evening of June 3, 2020, the Senate passed the Paycheck Protection Program Flexibility Act of 2020. President Trump is expected to sign it into law soon. As its name implies, the Act provides PPP loan recipients with significantly more flexibility to use the funds and receive forgiveness.
The main provisions of the Act:
- Extends the “Covered Period” in which qualified expenses can be paid and qualify for loan forgiveness from 8 weeks to 24 weeks, but the Covered Period cannot extend beyond December 31, 2020. However, borrowers that received their loan funds prior to enactment may still elect to use the 8-week period.
- Extends the deadline to rehire employees and restore pay cuts of greater than 25% to December 31, 2020 from June 30, 2020.
- Requires that at least 60% of the loan proceeds be used for qualified payroll costs to qualify for loan forgiveness. This provision overrides the controversial 75% requirement that the Small Business Administration adopted. However, the way the Act is written, if the 60% requirement is not met, no forgiveness would be allowed. There has already been discussion with the SBA on whether this provision can be adjusted to allow partial forgiveness by rule.
- Extends the six-month deferral period for making loan payments. The deferral period will now be in place until the date that loan forgiveness is determined and remitted from the SBA to the lender. However, if the borrower does not apply for forgiveness within ten months after their Covered Period ends, payments will begin at that time.
- Allows borrowers the ability to defer the employer’s portion of social security taxes incurred between March 27, 2020 and December 31, 2020. This deferral period was previously limited.
- Extends the loan term from two years to five years for the unforgiven portion of the loan.
- Adds a provision mitigating the forgiveness reduction due to a drop in FTEs if the borrower can document the inability to rehire or hire qualified replacements for unfilled positions on or before December 31, 2020, or their inability to return to the same level of business activity due to requirements related to maintenance of standards of sanitation, social distancing or any other worker or customer related safety requirement related to COVID-19.
These adjustments are generally very favorable. However, the Act does not address the current non-deductibility of expenses that are forgiven under the program.
We expect a revised forgiveness application and guidance to be issued after the Act becomes law.
The Treasury and the SBA continue to update, change and clarify the guidance related to the PPP Loan Program. Your ORBA advisor is available to assist you through this complex process. If you have questions regarding this Client Alert or if we can be of assistance in helping you through the application or forgiveness process, please contact Frank Washelesky at email@example.com or your ORBA advisor.