On June 5, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act). The bill addresses concerns around PPP loans that were initially signed into law as part of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act). The PPP Flexibility Act eases rules regarding loan forgiveness, a distinguishing and attractive feature of PPP loans.
Key changes under the PPP Flexibility Act include:
- Maturity date: Extends the minimum loan maturity date for loans made after the date of enactment of the PPP Flexibility Act from two years to five years.
- For loans that were made prior to the signing of the PPP Flexibility Act, the maturity date may be extended by mutual agreement of the lender and borrower.
- Covered period duration: Extends the deadline for borrowers to spend eligible expenses to be considered for loan forgiveness from eight weeks after the distribution of funds to 24 weeks after the distribution of funds. Borrowers who received funds before the enactment of the Flexibility Act can elect to use the original eight-week period.
- Nonpayroll expense forgiveness limitation: Increases the maximum amount of nonpayroll costs that can be considered for loan forgiveness from 25% to 40% of the total loan forgiveness amount.
- Employment restoration safe harbor: Extends the safe harbor date to avoid loan forgiveness reductions from June 30, 2020, to December 31, 2020, for borrowers that experienced reductions in full-time equivalent (FTE) employee levels or wages between February 15, 2020, and April 26, 2020.
- Loan forgiveness reduction exemptions:
- If employees, who were previously fired or furloughed, turn down good faith offers to be rehired for the same wages and number of hours as earned in the last pay period prior to the separation.
- If a borrower who is looking to restore employee count cannot find a similarly qualified employee for the unfilled position before December 31, 2020.
- If the borrower is unable to restore business operations to the levels at February 15, 2020, due to COVID-19-related operating restrictions or guidance from the U.S. Department of Health and Human Services (HHS), Centers for Disease Control and Prevention (CDC) or Occupational Safety and Health Administration (OSHA).
- Tax deferral under the CARES Act: Allows PPP borrowers to defer the loan’s 2020 Social Security tax burden into 2021 and 2022. (Prior to the PPP Flexibility Act, businesses who received PPP funds were not allowed to take advantage of the payroll tax deferral under the CARES Act.)
Areas of Uncertainty
- Questions remain around whether there will be changes to the loan forgiveness application.
- The CARES Act stipulated that a PPP forgiven loan would not constitute cancellation of debt income; however, it did not address whether PPP covered expenses would be tax deductible. Borrowers had hoped that any subsequent legislation related to the PPP would address this; however, it remains unaddressed.
Paycheck Protection Program Details
The table below summarizes key terms of the PPP as updated by the PPP Flexibility Act.