PPP Flexibility Act of 2020 – Signed into Law

Change to the Program

Impact on Borrowers

Extends the forgiveness period from 8 weeks to the earlier of 24 weeks after the loan origination date or December 31, 2020.  Borrowers who received their PPP loan prior to the enactment date of the legislation can elect to use their original 8-week forgiveness period.

Borrowers who already have a PPP loan now have the choice to use their original 8-week forgiveness period or opt for the extended 24-week forgiveness period.

If you do not have a PPP loan and would prefer the 8-week period, the window is closing quickly as the legislation appears to allow only those that already have PPP loans to retain the 8-week forgiveness period.  PPP loans issued after the enactment of the bill will have a 24-week forgiveness period.

To receive forgiveness, an eligible recipient shall use at least 60% of the covered loan amount for payroll and thus, may use up to 40% on any nonpayroll (mortgage interest, rent and lease expense, utilities) expenses.

The lowering of the payroll threshold is beneficial for businesses that have been slow to reopen or have not been able to reopen.  Updated 6/8/2020 – GBQ’s interpretation of the previous language was that only the forgivable portion would be subject to the 75%/25% rule.  While the language appeared to have been modified to require that 60% of the entire loan, regardless of whether the entire loan is forgivable, must be spent on payroll, this issue was clarified by a joint statement by the Treasury and the SBA on 6/8/2020.  The clarification provides that if a borrower uses less than 60% of the loan for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.  In other words, the 60/40 only applies to the forgivable portion and partial forgiveness is available.  Therefore if you have a $500,000 loan and you spend $200,000 on payroll during the 8 or 24 week period, then only $133, 333 of non-payroll expenses would be eligible for forgiveness ($200,000/60% * 40% = $133,333)

Allows that loan forgiveness will be determined without regard to a reduction in the number of full-time equivalent employees (“FTEE”) if the borrower, in good faith, can document:

• An inability to rehire individuals who were employees on February 15, 2020, and inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or
• An inability to return to the same level of business activity that the business was operating before February 15, 2020, due to compliance with federal requirements or guidance related to COVID-19.

This change will provide some much-needed relief from the FTEE reduction calculation (also referred to as the workforce reduction) that is part of the forgiveness calculation.  For businesses who have difficulty hiring employees back, or are not at full capacity because of COVID-19 related guidelines, will be afforded relief from the workforce reduction factor in determining forgiveness.

Establishes a maturity of five years for the loan on any balance not forgiven (but allows for the lender and borrower to mutually agree to modify the terms of maturity).

The original language for the PPP was a maturity of up to 10 years.  The SBA then modified that to 2 years.  The PPP Flexibility Act strikes a compromise, somewhat, of 5 years for the repayment.  This provides some liquidity relief to borrowers who do not receive full forgiveness.

Revises the deferral period for PPP loans, allowing recipients to defer payments until they receive forgiveness. Recipients who do not apply for forgiveness shall have 10 months from the recipient’s last day of such covered period to begin making payments.

This modification provides more liquidity and cash flow relief for borrowers in allowing further deferrals before the payback period begins.

Eliminates a provision that made PPP loan recipients with forgiven indebtedness ineligible to defer payroll tax payments.

Another adjustment which could also create some short term liquidity and cash flow relief, allowing for the deferral of payroll tax payments.  The original PPP language did not allow taxpayers to defer payroll taxes once forgiveness was granted.