The Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act), which made significant changes in the Paycheck Protection Program (PPP), became law on June 5, 2020. On June 8, 2020, the Small Business Administration (SBA) and the Department of the Treasury issued a joint statement regarding the enactment of the Flexibility Act, clarifying certain points of the Flexibility Act.
Extension of Covered Period
The covered period for loan forgiveness will be extended from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement. Borrowers who have already received PPP loans retain the option to use an eight-week covered period.
Use of Proceeds
The requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. Thus, if a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.
Full Time Employee Adjustment Safe Harbor
A safe harbor will be provided from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
Inability to Hire Safe Harbor
A safe harbor will be provided from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
Increase in Maturity
The maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020 will increase to five years (instead of two years).
Extension of Deferral Period and Timing of Forgiveness Application
The CARES Act does not specify a date by which a borrower must apply for forgiveness of the loan. The Flexibility Act addresses this by providing that the deferral period for borrower payments of principal, interest, and fees on PPP loans will be extended to the date that SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. Thus, if a borrower does not apply for forgiveness within 10 months following the end of the covered period, the borrower must repay the loan in full, beginning on the day that is 10 months after the end of the covered period.
Payroll Tax Deferral and PPP Loan
The CARES Act allows an employer to defer making deposits of employment taxes for 2020 and 2021. However, under the CARES Act, the deferral is not available for an employer that has had a PPP loan forgiven in whole or in part. The Flexibility Act strikes this exclusion (with effect from the original date of the CARES Act). With the passing of the Flexibility Act, PPP borrowers will be eligible for both PPP loan forgiveness and for the payroll tax deferral.
No Extension of PPP
The new rules will confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved.
If you have questions, please contact Ghazaleh Modarresi, Attorney at Berliner Cohen, LLP at Ghazaleh.Modarresi@berliner.com or (408) 286-5800.
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