On June 3, the U.S. Senate passed the PPP Flexibility Act of 2020, which places a more rigorous requirement to spend a minimum of 60 percent of the loan proceeds on payroll costs in order to qualify for loan forgiveness. Previously, this requirement was 75 percent of the forgiveness amount. The bill does not alter many other rules of forgiveness, including the FTE reduction or salary/wage reduction calculations, affiliation rules, certification of economic uncertainty, and the necessity of loan request.
Here are the seven most notable changes to the PPP:
- The maturity of loans is extended to a minimum of five years. This provision applies only to loans entered into on or after the date that the bill is enacted.
- As mentioned above, borrowers are required to spend at least 60 percent of the loan proceeds on payroll costs in order to be eligible for loan forgiveness.
- The Covered Period extends to the earlier of (i) 24 weeks from the date of disbursement of PPP loan funds to the borrower, or (ii) December 31, 2020. Existing borrowers with loan origination dates prior to enactment of this Act can elect to keep their Covered Period at eight weeks from the date of loan fund disbursement.
- The time period employers have to rehire former employees (or hire new ones in their place) and restore salary levels is extended to December 31, 2020 from June 30, 2020.
- For the purposes of determining loan forgiveness, consideration of the employment level of a company is prohibited as long as the borrower, in good faith, can document that the company was unable to:
- Rehire individuals that were employees of the eligible recipient on February 15, 2020; AND
- Hire someone of similar qualifications as a former employee by December 31, 2020; OR
- Return to the same level of activity the business was operating at before February 15, 2020, due to their compliance with guidelines or requirements related to the pandemic issued by the CDC, the Department of Health and Human Services, or the Occupational Safety and Health Administration (OSHA).
- Payments of interest and principal are deferred until the SBA remits—to the lender—the amount of forgiveness granted to the borrower, provided the borrower applies for PPP loan forgiveness within 10 months of the end of the covered period.
- Companies receiving PPP loan forgiveness will no longer be ineligible for the delay of payment of employer payroll taxes.