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CARES Act – Client Alert – Paycheck Protection Program Flexibility Act

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CLIENT UPDATE: On June 3, 2020, the Senate unanimously passed the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”), which makes significant changes to the Paycheck Protection Program (“PPP”). The purpose of the PPPFA is to provide greater flexibility with respect to borrowers’ use of PPP loan proceeds and to ease certain forgiveness requirements, thereby increasing forgiveness eligibility. Thus, the PPPFA will be welcome news for small businesses that are struggling during this uncertain economic period. 

The bill now awaits the President’s signature, and he is expected to sign the bill into law sometime this week. Highlights of the PPPFA include:

  • Extension of the covered period
    • The bill extends the covered period for PPP loans from 8 weeks to the earlier of: (1) 24 weeks from the origination date of the loan; or (2) to December 31, 2020. However, the borrower may elect to opt out of the extension and keep the original 8-week covered period.
  • Maturity and deferment period extension
    • Extends the maturity date of a PPP loan from 2 years to 5 years; however, this extension only applies to loans made on or after the date the PPPFA is enacted. All previous loans carry a maturity date of 2 years, although note that the PPPFA permits lenders and borrowers to mutually agree to a modification of the maturity terms so as to possibly allow for those prior PPP loans to be extended to 5 years.
    • Current PPP loans have a payment deferment period of 6 months, but the PPPFA extends this deferment period until the date on which the amount of forgiveness is determined.
  • Increased forgiveness eligibility for non-payroll costs
    • Originally, forgiveness would be reduced if less than 75% of the eligible forgiveness amount had been used on payroll costs; the PPPFA lowers that percentage to 60%. However, this 60% now appears to be a threshold. Thus, in order to be eligible for any forgiveness, no more than 40% of the PPP loan proceeds may now be used for non-payroll expenses (rent, mortgage interest payments, and utilities).
  • Deferral of employer payroll taxes
    • PPP borrowers who had part or all of their PPP loan forgiven may now also take advantage of the employer payroll tax deferment provided under the CARES Act.
  • Employee FTE changes
    • The PPPFA extends the date to restore full time equivalent employees (“FTEs”) from June 30 to December 31, 2020. 
    • The PPPFA provides that reductions in FTEs can be disregarded for forgiveness reduction purposes under certain circumstances, including reductions in FTEs due to: (1) an inability to rehire employees who were employees as of February 15, 2020; (2) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; and (3) an inability to return to the same level of business activity that the business had before February 15, 2020 due to compliance with COVID-19 related requirements or guidance (such as that relating to sanitation or social distancing) issued by the Secretary of Health and Human Services, the CDC, or OSHA. Please note that documentation will be required to adequately demonstrate the above-mentioned exceptions.  
  • Deadline to apply for PPP
    • The deadline to apply for a PPP loan has been extended from June 30, 2020 to December 31, 2020.

The full text of the PPPFA is available here: https://www.congress.gov/116/bills/hr7010/BILLS-116hr7010eh.pdf (last accessed June 4, 2020).

We expect Treasury or the SBA to issue additional guidance on the PPPFA shortly after the bill is signed into law. Wadleigh’s COVID-19 Response Team will continue to monitor this situation closely and provide updates as the situation develops.