PPP FLEXIBILITY ACT
June 5, 2020 –
The President has signed the Senate approved bill which had been passed by the House of Representatives, and that significantly modifies the Paycheck Protection Program (“PPP”) rules.
The major changes to the PPP program include:
- Deadline to Use the Loan Proceeds: Borrowers now have 24 weeks to use their PPP funds, extended from the original 8 weeks.
- Forgivable Uses of the Loan Proceeds: The forgiveness threshold requiring 75% of funds to be spent on payroll was lowered to 60%. However, where the prior rule allowed for graduated forgiveness if payroll costs fell below 75% of the total, the new, lower mark is a cliff that must be scaled to receive any forgiveness at all – for now.
- Safe Harbor for Rehiring: The deadline for rehiring workers in order to qualify for safe harbor from the reduction factors was moved from June 30th to December 31st.
- Salary/Hourly Wage Reduction Safe Harbor Expansion: The CARES Act allows the borrower to avoid a reduction in the forgivable amount that would otherwise result from a reduction of an employee’s salary/hourly wages compared to February 15, 2020 if the borrower can restore the salary/hourly wages by June 30, 2020. The Flexibility Act gives the borrower until December 31, 2020 to restore salary/hourly wages.
- New Exemptions from Rehiring Workers: Employers can exclude from the FTE Reduction Factor calculation any positions that, during the period between February 15th and December 31st, they were (1) unable to rehire employees and (2) unable to hire similarly qualified employees for unfilled positions; or (b) is able to document an inability to return to the same level of business activity as was operating before February 15, 2020 because of social distancing or other federal health guidelines.
- Loan Maturity Date: For new loans issued after this amendment takes effect, the payback period for any unused funds was extended from 2 years to 5 years, with repayments to begin upon receipt of a final forgiveness determination from the SBA. For existing loans, it is up to the borrower and lender to agree to an extension to 5 years.