Payroll Protection Program Flexibility Act

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The Payroll Protection Program Flexibility Act (PPPFA) was signed into law on June 5, 2020. In general terms, the Act allows borrowers more flexibility, including these key provisions:

• The loan maturity date is extended to 5 years for loans made AFTER the new law was passed. However, lenders and borrowers may mutually agree to extend the maturity date on existing loans.
• The deadline to use the loan proceeds is extended from eight weeks to twenty-four weeks. Borrowers may elect to use an eight-week period.
• The amount of non-payroll costs that qualify for forgiveness is increased from 25% to 40%.
• The deadline for reaching the full-time equivalent (FTE) employees' safe harbor has been extended from June 30 to December 31, 2020.
• The Act allows borrowers to avoid decreases in loan forgiveness if the borrower can document that they attempted but were unable to rehire individuals who were employed on February 15 and have been unable to hire “similarly qualified employees” by December 31, 2020. Also, forgiveness will not be reduced due to the FTE count if the borrower, in good faith, can document an inability to return to the same level of business activity as prior to February 15 due to compliance with requirements or guidance issued by public health officials.
• The Act extends the deferral period for loan payments to the date on which the SBA advises the lender of the forgiveness amount or 10 months after the borrower’s covered period if the borrower does not apply for forgiveness.
• The Act expands the allowable deferral of certain payroll taxes to borrowers receiving loan forgiveness. We would only recommend taking advantage of this provision in a very limited number of situations.

As a result of these changes to the law, the Small Business Administration (SBA) has released two new versions of the PPP Loan Forgiveness Application forms and related instructions. We continue to monitor regulations issued by the SBA, as we expect there will be additional rules released that may affect the process of preparing and submitting the forgiveness application.

As of today, June 29, 2020, it is not yet possible for borrowers to submit a PPP Loan Forgiveness Application because the SBA is working to develop its process. In addition, we expect that lenders will not be accepting forgiveness applications for the next few weeks.

The PPPFA allows businesses to use their PPP loan proceeds over a longer twenty-four-week covered period. Businesses that received a PPP loan before June 5 may elect to use the original eight-week covered period. SBA guidance issued last week suggests that borrowers may submit PPP Loan Forgiveness Applications before the end of the twenty-four-week covered period. However, it is unclear at this point how the application process will be affected if a borrower applies before the end of the new twenty-four-week covered period. We expect that the SBA will issue additional guidance to clarify this in the coming weeks.

Clearly, the process that borrowers must follow for filing for forgiveness has become more complicated as a result of the changes contained in the PPPFA. Borrowers will need to determine if they qualify to use the new “EZ” application form and whether they should use the eight-week period, the twenty-four-week period, or something in between.

The timing of completing and submitting your application to your lender will depend on several factors.

As always, if you have any questions or concerns regarding this information, please feel free to contact our office.