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Flexibility Act Brings Changes to the Paycheck Protection Program

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After hearing concerns about the restrictions of the Paycheck Protection Program (PPP), Congress has passed a bill that makes it easier for small businesses to use their PPP loan funds and get their loans forgiven. HR 7010, the Paycheck Protection Program Flexibility Act (Flexibility Act) of 2020, was first passed by the House of Representatives on May 28, 2020, and then passed unanimously by the Senate late in the day June 3, 2020. President Trump signed the bill into law on June 5, 2020.

The Flexibility Act eases restrictions and contains very favorable and borrower-friendly changes to the Paycheck Protection Program (PPP), including:

  • Increases the minimum loan term from two years to five years and retains the 10-year maximum term applicable to all PPP loans made on or after the date the Flexibility Act is enacted
    • Allows borrowers and lenders of existing PPP loans to mutually agree to modify the terms to conform with these terms

The above provision is the only section of the Flexibility Act that becomes effective upon enactment. The remaining provisions are amendments to the CARES Act and are effective retroactively to March 27, 2020, the date the CARES Act became law:

  • Extends the covered period end date from June 30, 2020, to December 31, 2020
  • Increases the covered period from eight weeks to 24 weeks, or by December 31, 2020; however, borrowers who received loans prior to the enactment of the Flexibility Act may elect to use an eight-week covered period beginning on the date the loan was funded
    • We believe that this may increase the maximum wage per individual from $15,385 to $46,153 when using the 24-week covered period
  • Requires that 60% of loan proceeds must be used for payroll costs in order to be eligible for loan forgiveness
  • Provides additional exceptions to the FTE requirement for forgiveness if:
    • Borrower documents their inability to rehire prior employees or similarly qualified employees on or before December 31, 2020, or
    • Borrower is able to document an inability to return to the same level of business activity as they had before February 15, 2020, due to compliance with HHS, CDC, or OSHA standards for sanitation, social distancing, or other worker or customer safety requirements related to COVID-19
  • For borrowers who receive loan forgiveness, payments on any loan balance not forgiven will begin on the date on which the borrower receives notification of forgiveness
  • Establishes a deferral period that is the length of the covered period plus 10 months for borrowers who do not seek forgiveness
  • Allows borrowers to continue to defer employer payroll tax even after the loan is forgiven

We held a webinar on June 10, 2020, to review the changes of the Paycheck Protection Program Flexibility Act. Watch the recording here.

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