PPP Flexibility Act: Key Details for Business Owners to Know

Len Fishman, Phil Ross and Eli Perlmutter of BBH Corporate Advisory & Banking break down key changes to PPP loans under the newly signed Paycheck Protection Program Flexibility Act.

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.

This table summarized key terms of the PPP as updated by the PPP flexibility act.  This includeds Eligibility, Faciltiy, Forgivable use of Funds, Maturity, Interest Rate, Guarantees, NonRecourse, Payment Deferral, Loan Forgivenessl, Loan Forgiveness Expecations, Conditions to Borrowings, and Fees.

1Affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control multiple businesses.
2See the SBA Size Standards Tool here: https://www.sba.gov/size-standards/. To confirm your NAICS code, visit https://www.naics.com/naics-identification-help/.
3The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to noncash benefits, including contributions to retirement plans, payments for employee benefits and payment of state and local taxes assessed on compensation of employees.
4 Payroll excludes amounts paid to an independent contractor or sole proprietor and employees whose primary place of residence is outside of the United States.
5 SBA Express loans have accelerated turnaround time for SBA to review but only have a 50% SBA guaranty and permit a lender to use its collateral policy for loans greater than $25,000.
6 The Loan Forgiveness Application can be found here.
7 Excludes wages paid for paid sick and family leave under the Families First Coronavirus Response Act, and payroll costs are capped at $100,000 on an annualized basis for each employee.
8 Rent, mortgage and utilities must have been in force, incurred and in service prior to February 15, 2020.
9 Seasonal employers may also choose between a consecutive 12-week period between May 1, 2019, and September 15, 2019.

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