Paycheck Protection Program Flexibility Act of 2020

By Greg Yoder

Congress has just passed new legislation significantly liberalizing the loan forgiveness provisions of the Paycheck Protection Program (PPP) established by the CARES Act.

In response to the continuing COVID-19 situation and the concerns of many businesses about the difficulty of navigating the existing forgiveness provisions, the House passed legislation late last week. Last night, the Senate passed the House version without changes, and the President is expected to sign the bill into law later today.

Major provisions of the bill:

  • The “covered period” has been extended from eight to twenty-four weeks from the date of loan origination, or December 31, 2020, whichever is earlier. Current PPP borrowers can either use the new extended covered period or keep their original eight-week period. This means that businesses now have three times as long to incur and/or pay expenses that are eligible for loan forgiveness.
  • The minimum proportion of the loan forgiveness amount that must be used for payroll costs has been reduced from 75% to 60%. However, borrowers who do not have covered period payroll costs totaling at least 60% of the loan amount will not be eligible for any forgiveness.
  • Businesses that receive PPP loans are now eligible for the other payroll tax deferral provisions of CARES. (Previously, once your PPP loan was forgiven you couldn’t defer payment of payroll taxes.)
  • Loan recipients who don’t apply for forgiveness will have ten months from the end of the covered period to begin making payments on the loan.
  • Employers will have until December 31 (rather than June 30) to restore employee salaries and FTEs to prior levels to avoid a reduction in forgiveness.
  • The bill provides additional exceptions for businesses that can’t fully restore staffing levels because of an inability to hire or because of an inability to fully resume operations because of complying with COVID-19 safety orders.

For a lot of businesses, the major takeaway from the new legislation will be that their eligible payroll costs during the covered period will now exceed the loan amount, and the entire loan amount can be forgiven without having to consider other eligible costs. The other practical effect is that employers will have an additional sixteen weeks before they begin the complex loan forgiveness application process.

The current legislation likely isn’t the last Congressional action we’ll see in response to the pandemic. Additionally, there are still a number of areas where we’re awaiting clarification from the SBA on other PPP matters. We’ll be back with more updates.

Disclaimer: Please note this article is based on the information that is currently available and is subject to change.