Paycheck Protection Program Flexibility Act Of 2020

Many business owners had called on the federal government to update the Paycheck Protection Program as they struggle to meet its terms and fear they may be forced to take on debt even as their businesses haven’t fully recovered. On June 5, 2020, President Donald Trump has signed the Paycheck Protection Program Flexibility Act (PPPFA) in an attempt to address many concerns expressed by the small business community around the Paycheck Protection Program (PPP) aimed at providing COVID-19 relief. Business owners who received a forgivable loan through the Paycheck Protection Program are getting more leeway on how to spend those funds. The new law addresses the following flaws in the original PPP program created under the CARES Act:

1. PPPFA changes the amount of loan needed for payroll to 60%

The PPPFA reduces the amount of the loan needed to be spent on payroll from 75% to 60%, thus increasing the number of funds available for other expenses from 25% to 40%.

2. PPPFA extends the time period to use funds from 8 to 24 weeks

The PPPFA fixed this by extending the time period to spend the loans to 24 weeks. While businesses will still need to spend the money on payroll and authorized expenses, they now have until the end of 2020 to do so.

3. PPPFA pushes back a June 30 deadline to rehire workers to December 31, 2020

Under the new law, businesses now have until December 31, 2020, to rehire workers in order for their salaries to count towards forgiveness.

4. PPPFA eases rehire requirements

As the intent of PPP was to keep the same number of employees on the payroll as was used to calculate the loan, it required a business to rehire the same number of full-time employees or full-time equivalents by June 30, 2020. The only exception to this rule was if an employer could document in writing an attempt to rehire an employee who rejected this offer. The new law makes two significant changes to these requirements. First, it extends the rehire date to December 31, 2020, and second, it adds additional exceptions for a reduced headcount. The law states business can still receive forgiveness on payroll amounts if it:

Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
Is able to demonstrate an inability to return to the same level of business activity as such business was operating prior to February 15, 2020.

5. PPPFA extends the repayment term from 2 years to 5

A business now will have five years at 1% interest to repay the loan. Further, the first payment will be deferred for six months after the SBA makes a determination on forgiveness. Since under current regulations your bank has 60 days to make a forgiveness determination and the SBA an additional 90 days, this means you could have up until May of 2021 to make the first payment on the loan. In addition, the PPPFA also allows borrowers to take advantage of the CARES Act provision allowing deferment of the employer’s payroll taxes for Social Security. Previously, PPP did not permit deferment of these taxes on the forgivable portion of the loan.

Reference:https://www.jdsupra.com/legalnews/paycheck-protection-program-flexibility-72132/