The Paycheck Protection Program Flexibility Act of 2020 (the “
PPP Flexibility Act
”) was signed into law on June 5, 2020. It eases restrictions and provides flexibility under the Paycheck Protection Program (“
PPP
”). Key changes include:
- Extension of the Forgiveness Period from 8 weeks to the earlier of 24 weeks from the origination of the loan or December 31, 2020;
- Relaxation of the PPP loan allocation rule from 75% payroll expenses to 60% payroll expenses;
- Safe harbor exemption requirement to restore full-time equivalency extended from June 30, 2020 to December 31, 2020;
- Additional full-time equivalency exemptions made available;
- Extension of the maturity date and deferment period; and
- Employer payroll tax deferral.
Extension of the Forgiveness Period
Prior to the passing of the PPP Flexibility Act, prior law and guidance defined “covered period” to mean 8 weeks from the date of the PPP loan. Any PPP loan proceeds that were not used during the covered period were not eligible for loan forgiveness. However, under this guidance, a number of PPP loan recipients would have been unable to use the full amount of their PPP loan during the covered period. Now, the PPP Flexibility Act extends the covered period during which PPP loan proceeds can be used from 8 weeks to the earlier of 24 weeks from the loan origination date or December 31, 2020.
Changes to Loan Allocation Rules
The original PPP rules required that at least 75% of the loan proceeds be used towards payroll costs for loan forgiveness, and only 25% of the loan proceeds could be used towards certain non-payroll costs such as rent, mortgage interest, and utilities. The PPP Flexibility Act changed the permissible allocation of PPP loan proceeds. A borrower now has to utilize 60% of the loan proceeds towards payroll costs, and the remaining 40% of the loan proceeds can be used towards rent, mortgage interest and utilities.
Safe Harbor Exemption Requirement to restore Full-Time Equivalency extended from June 30, 2020 to December 31, 2020
The original PPP provided that the loan forgiveness amount could be subjected to a reduction if the borrower’s average weekly full-time equivalent employee headcount during the “covered period” was below its chosen reference period (“
FTE Rule
”). However, a borrower could avoid this reduction if it was able to restore its average weekly full-time equivalency levels by June 30, 2020.
Under the new safe harbor exemption, the period is now extended from June 30, 2020 to December 31, 2020.
Additional Full-Time Equivalency Exemptions
A borrower is exempt from the FTE Rule under the PPP Flexibility Act if during the period between February 15, 2020 to December 31, 2020, a borrower is able to document:
- An inability to rehire individuals who were employees of the borrower on February 15, 2020;
- An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
- An inability to return to the same level of business activity as such borrower’s business was operating at before February 15, 2020, due to compliance with social distancing, sanitation requirements, or customer safety needs as established by the governmental entities listed in the PPP Flexibility Act.
Extension of the Maturity Date and Deferment Period
The maturity date for PPP loans has been extended from 2 years to 5 years. Further, the PPP Flexibility Act extends the six-month deferral of payments due until the date on which the amount of loan forgiveness is due to be remitted to the lender. If a borrower fails to apply for loan forgiveness within 10 months after the last day of the covered period for PPP loan forgiveness, the borrower must begin to make payments of principal, interest, and fees on its PPP loan.
Employer Payroll Tax Deferral
Prior to the enactment of the PPP Flexibility Act, a PPP loan recipient could not avail itself of the payroll tax deferrals available under the CARES Act. However this option has now been made available to the PPP borrowers.
Mirick O’Connell’s business attorneys have been monitoring the evolution of the Paycheck Protection Program and would be happy to answer any additional questions regarding your PPP loan.
