UPDATE: PPP Flexibility Act and PPP Loan Forgiveness

You likely heard that on June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”). The PPPFA provides some much-needed clarity and modifications to the Paycheck Protection Program (“PPP”). Overall, the changes are beneficial to employers who applied or are planning to apply for PPP and it appears the government has taken into account several criticism and critiques regarding the program. Some of the most significant changes concern:

  • Loan Forgiveness;
    • The “Covered Period” (defined in the CARES Act) was been increased from 8 weeks to 24 weeks. 
      • Therefore, borrowers will have additional time in which to use their PPP funds and obtain forgiveness. 
  • Use of the Funds;
    • The amount of the PPP funds attributable to payroll costs was reduced from 75% to 60% of the amounts forgiven. 
      • As a result, borrowers can now spend up to 40% of their PPP funds on eligible “Nonpayroll Costs” like rent, utility costs, and interest on mortgage loans. 
  • Extended Deadlines; and
    • Applying for a Loan
      • The deadline to apply for a PPP loan is extended from June 30, 2020, to December 31, 2020 (or until funds run out).
    • Applying for Forgiveness
      • Originally, repayment was deferred for 6 months, are now deferred until 10 months after the Covered Period ends.
      • If a Forgiveness Application is not submitted, the borrower must begin making its payments.
    • Maturity Date
      • New PPP borrowers have 5 years to repay the loan amounts, which are not forgiven. Previously, the law provided borrowers only 2 years to pay. Additionally, existing PPP loans can be extended up to 5 years, upon the lender’s agreement.
    • Rehire and Salary Restoration Safe Harbor
      • Borrowers have until December 31, 2020, to rehire and/or restore employee positions and/or salaries to avoid being penalized under the loan forgiveness calculations.
        • Previously, employers only had until June 30, 2020.
  • Tax Consequences
    • Borrowers are permitted to delay payment of payroll taxes even if they are planning to seek loan forgiveness.
      • Prior to the PPPFA, borrowers with forgiven PPP loans were not eligible for the CARES Act’s payroll tax deferral.
    • Therefore, borrowers may defer payroll taxes for the period from March 27, 2020 through December 31, 2020.

The list outlined above, however, is not all-inclusive and does not address other recent rules and guidance issued by the government. For example, on May 15, 2020 the SBA and Treasury Department release the PPP loan forgiveness application. A few weeks later, on June 1, 2020, the SBA published an Interim Final Rule providing some additional clarification regarding PPP, loan forgiveness, and the application process, such as: clarification of what qualifies as an eligible “Payroll Cost”; the loan forgiveness process; what Payroll Costs and Non-payroll costs may be forgiven; how employees should be accounted for in forgiveness calculations (particularly those who refused to return to work). If you have any questions regarding the above or PPP in general, feel free to contact us.

Ultimately, there is no shortage of information regarding the CARES Act, PPP, and SBA regulations applying these new laws. In fact, the amount of legislation, regulations, and administrative rules passed as a result of the COVID-19 pandemic is unprecedented. Understandably, business owners and employers are looking for assistance to understand and decode this piecemeal patchwork of relief legislation.

The Trembly Law Firm is actively assisting businesses navigate through this extremely difficult time. Providing updates on recent developments, guidance on regulatory interpretations, and developing plans and strategies focused on returning clients back to normal.

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