Paycheck Protection Program Flexibility Act of 2020: Highlights
On June 3, Congress passed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA), and sent the bill to President Trump for signature. As of June 5th, 2020, the bill was signed into law.
The new law adds significant flexibility to the PPP program, but, as has been the case in the past, many questions remain, and we await “guidance” from the SBA.
Highlights of the bill follow:
- Provided there is money left to lend, borrowers now have up to December 31, 2020 to apply for a loan.
- Borrowers now have 24 weeks to spend the loan, provided the period does not go past December 31, 2020. For existing loans, borrowers may elect to stay with the 8-week period.
- Significantly, the new law reduced the percentage of loan proceeds that must be used on payroll to 60%, instead of the previously mandated 75%. However, as the statute is written, none of the loan will be forgiven if the borrower spends less than 60% on payroll costs. Advocates hope that SBA guidance will provide more flexibility.
- The latest possible date to spend the loan proceeds, and to reestablish prior salary and FTE levels, has been extended to December 31, 2020.
Under the new law, in addition to exclusions from the FTE calculation previously issued by the SBA, there are two new exemptions:
- When the employer could not rehire an individual and could not hire similarly qualified employees for unfilled positions;
- Where the employer was unable to return to the same level of business activity as previously existed due to compliance with federal requirements related to sanitation, social distancing, or other worker or customer safety requirements related to Coronavirus (COVID-19). This exception does not appear to apply to state or local requirements that exceed those issued by the federal government.
The new law adds a 10-month time limit for borrowers to apply for forgiveness, running from the last date of the covered period – either 8 or 24 weeks.
The new law extends the loan repayment period to 5 years (from 2 years) for new loans. Borrowers and lenders may negotiate to extend existing loans. This is another area where it is hoped that SBA Guidance will
provide greater flexibility.
The new law eliminates an exception to the CARES Act and now allows employers to delay payment of payroll taxes, if the employer has indebtedness forgiven under the PPP.