Paycheck Protection Program Flexibility Act of 2020

The Paycheck Protection Program continues to progress. This week U.S. Treasury Secretary Steven T. Mnuchin and Small Business Administration (SBA) Administrator Jovita Carranza announced the Paycheck Protection Program (PPP) Flexibility Act. This Act will provide businesses with more time and flexibility to keep their employees on the payroll and ensure their continued operations as the country safely reopens. The SBA, in consultation with Treasury, will promptly issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing these legislative amendments to the PPP. Below is a summary of the modifications.

  • Extends the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement. This will provide substantially greater flexibility for borrowers to qualify for loan forgiveness. Borrowers who have already received PPP loans retain the option to use an eight-week covered period.
  • Lowers the requirement that 75% of a borrower’s loan proceeds must be used for payroll costs and that 75% of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60% for each of these requirements. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.
  • Provides a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
  • Provides a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
  • Increases to five years the maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020.
  • Extends the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).

In addition, the new rules will confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved.

As the PPP program will continue to evolve, we will continue to keep you informed as the program and guidance is updated. If you have any questions or concerns, please contact one of our tax professionals at (973) 298-8500.

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