On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”). The PPPFA provides significant borrower-friendly changes to the CARES Act and the Paycheck Protection Program (“PPP”). Some of these changes are discussed more fully below.
Loan Maturity
The maximum loan maturity for a PPP loan was 10 years under the CARES Act. However, under Interim Final Rules, the SBA had made loan maturities for PPP loans 3 years. Under the PPPFA, the minimum maturity for PPP loans is 5 years.
Extension of Loan Covered Period
Generally, the CARES Act provided that the covered period for a PPP loan was February 15, 2020, through June 30, 2020. The PPPFA has extended the covered period to December 31, 2020.
In addition, the PPPFA now provides the borrower with additional time to pay or incur eligible expenses for loan forgiveness. Under the CARES Act, this period was 8 weeks from the date of the first loan disbursement. Under the PPPFA, this period has been extended to 24 weeks (up until December 31, 2020).
Reduction of Forgivable Loan Amount for Employee Headcount Reduction
The primary goal of the PPP loan program was to ensure borrowers maintained employees. Thus, the CARES Act had several provisions which would reduce the forgivable amount if, for example, employee headcount was reduced during specified periods.
Under the PPPFA, a reduction in employee headcount will not reduce the loan forgiveness amount if the borrower, in good faith, can document an inability to: (1) rehire individuals who were employees of the borrower on February 15, 2020, and (2) hire similarly qualified employees for unfilled positions on or before December 31, 2020.
Moreover, the PPPFA similar provides that a reduction in employee headcount will not reduce the loan forgiveness amount if the borrower, in good faith, is able to document an inability to return to the same level of business activity as the business was operating before February 15, 2020, due to compliance with requirements established or guidance issued 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 during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
Payroll Loan Forgiveness Requirement
Under Interim Final Rules, a borrower was required to pay or incur at least 75% of his eligible expenses on payroll costs to qualify for full loan forgiveness. The PPPFA reduces this threshold to 60%. Accordingly, a borrower may use 40% of the PPP loan proceeds for payment of interest on a covered mortgage obligation, payment on a covered rent obligation, or payment on a covered utility payment.
Delay of Employer Payroll Taxes
Under the CARES Act, certain employers and self-employed individuals could defer payment of the employer portion of payroll taxes and self-employment taxes, respectively, to December 31, 2021, and December 31, 2022. However, the CARES Act also provided that any taxpayer who had debt forgiven under the PPP loan program did not qualify. The PPPFA now permits these taxpayers to qualify for payment deferral.
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