On June 3, 2020, the Senate passed the House version of the Paycheck Protection Program Flexibility Act of 2020 (the PPP Flexibility Act). It is expected to be signed into law by President Trump. The Act was passed to fix several issues created by the Small Business Administration (SBA) and Treasury when implementing guidance under the Paycheck Protection Program.
Most notably, this bill:
- Extends the minimum loan maturity date from 2 years to 5 years for all loans made after the date of enactment of the PPP Flexibility Act. The maturity date on previous PPP loans is not automatically extended, but it may be extended by mutual agreement of the lender and borrower. The CARES Act originally gave SBA and Treasury the ability to select maturity dates of up to 10 years.
- Extends the “covered period” for borrowers to spend loan proceeds on forgivable expenses from 8 weeks to 24 weeks, as many borrowers are not yet able to open for business and were being forced to choose between forgiveness and conserving PPP loan proceeds until they could open again. Existing borrowers can elect to keep the current 8 week covered period, if preferred, or adopt the 24 week covered period.
- Extends the deadline to cure reductions in full-time equivalent headcount and salary cuts from June 30, 2020 to December 31, 2020, and provides potential exemptions for the reduction in forgiveness due to headcount if the borrower is not able to rehire employees or hire replacement employees or cannot return to normal business activities because of health and safety restrictions.
- Increases the maximum amount of the PPP loan proceeds that can be spent on non-payroll costs from 25% to 40%. For many borrowers, non-payroll costs were a significant part of their covered period expenses.
- Extends the deferral period before loan payments begin from a fixed 6 months to the time at which a borrower’s final forgiveness decision is rendered by the SBA. A backlog of forgiveness decisions is likely to occur, and this ensures that borrowers in “forgiveness limbo” aren’t required to start making payments. For borrowers who do not seek forgiveness, the deferral period lasts 10 months.
- Eliminates the prohibition on payroll tax deferral for PPP borrowers. Thus, PPP borrowers will now be able to take full advantage of the payroll tax deferral provided for in the CARES Act without being required to stop deferring the payment of those taxes if and when their PPP loan is forgiven.
We will need to wait until the President signs the PPP Flexibility Act into law and the SBA and Treasury interprets the Act before we can provide additional guidance to our clients.