On June 5, 2020, the President Trump signed into law H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020 (the “Act”). The Act makes several key changes to the Paycheck Protection Program (“PPP”), offering small businesses some much needed additional flexibility to use their PPP loan proceeds. The Act:
- Increases the period borrowers have to spend the PPP loan proceeds from eight weeks to 24 weeks. Borrowers with existing loans may elect to retain the existing eight week period.
- Increases loan maturity from two years to five years, for any portion of the PPP loan that is not forgiven. This change would apply only to PPP loans received after the bill’s enactment date; however, existing PPP loans could be modified to reflect the new maturity terms by mutual agreement between the lender and borrower.
- Extends the application deadline from June 30, 2020 to December 31, 2020.
- Extends the period of time from June 30, 2020 to December 31, 2020, in which a borrower may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a PPP loan.
- Reduces the minimum amount required to be spent for payroll costs, in order to qualify for full loan forgiveness purposes, from 75 percent to 60 percent.
- Creates a new safe harbor for certain borrowers experiencing ongoing full time equivalent (FTE) reductions, who would have otherwise experienced a reduction in loan forgiveness. In order to qualify for the safe harbor, borrowers must be able to document either of the following:
- Inability to rehire individuals who were employees on February 15, 2020, and inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
- Inability to return to the same level of business activity borrower was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the secretary of the U.S. Department of Health and Human Services, director of the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration during the period beginning March 1, 2020, and ending December 31, 2020, relating to the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19.
- Defers principal and interest payments until the U.S. Small Business Administration (SBA) remits the loan forgiveness amount to the lender (currently a six-month deferral period).
- Provides that if loan forgiveness is not requested by a borrower within 10 months of the last day of the covered period, then the borrower will be required to commence payments on principle, interest and fees on the PPP loan.
- Removes restriction on a borrower’s access to payroll tax deferment (previously, borrowers could only take advantage of the payroll tax deferral provision until a borrower received PPP loan forgiveness).
Should you have any further questions or concerns, please do not hesitate to contact a Carson LLP attorney.