The U.S. Senate passed the House version of the Paycheck Protection Program (PPP) Flexibility Act of 2020 (the “Act”) Wednesday night, which substantially modified several key provisions of existing PPP legislation. The Act needs to be signed into law by the President, which is expected to occur today.
The Act provides business owners more flexibility and time to use the PPP loan process and still be eligible for forgiveness. Below is a high-level summary of the changes:
Extension of the Covered Period: The Act extends the “covered period” until December 31, 2020. For purposes of forgiveness, the “covered period” is extended to the earlier of 24 weeks after the date of origination of the loan or December 31, 2020. This provides existing borrowers an additional 16 weeks to use loan proceeds and be eligible for forgiveness. Further, existing borrowers now have until December 31, 2020, (previously it was June 30, 2020) to restore full-time equivalent employee levels and remove any reduction in salaries which may otherwise decrease an existing borrower’s forgiveness total.
Additional Exemption for Forgiveness Reduction Based on Employee Availability: Under the Act, a borrower’s eligible forgivable amount is determined without regard to a proportional reduction in the number of full-time equivalent employees if such borrower, in good faith is able to document (A) (i) an inability to rehire individuals who were employees of the borrower on February 15, 2020; and (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or (B) an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by federal agencies related to the maintenance of standards for sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
60/40 Use of Loan Proceeds: The Act has substantially reduced the percentage of loan proceeds that must be used for payroll costs from 75% to 60%. To receive loan forgiveness, an eligible borrower must use at least 60% of its loan proceeds for payroll costs and may use up to 40% of loan proceeds for such other permitted non-payroll costs.
Extension of Deferral Period: Borrowers are now eligible for a deferral period for payments of principal, interest, and fees until the date on which the amount of forgiveness is remitted to the lender. However, a borrower will have to start making payments if it does not apply for loan forgiveness within 10 months after the end of the covered period for forgiveness.
Delay of Payment of Employer Payroll Taxes: The Act now allows PPP recipients to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
Extended Term on New Loans: For new PPP loans, the Act extends the term of the loan to five years. This does not modify the two-year term of existing loans, which would only change if a borrower and its lender amended the terms of their loan.
We anticipate the SBA and Treasury will release an updated forgiveness application covering these changes as well as further guidance on remaining open points. If you would like more information on the Paycheck Protection Loan or the loan forgiveness programs, please contact a member of our Corporate practice group at 585.232.6500 or 716.853.1616.