PPP Flexibility Act Brings Welcome Changes to Loan Program

Congress yesterday passed the H.R. 7010, entitled the Payroll Protection Program Flexibility Act of 2020 (PPFA), to fix what many perceived to be some of the biggest flaws in the loan program. The ink is not quite dry — it’s still awaiting the President’s signature — but the chances are low that the President will veto the bill, and we expect to see several changes implemented soon. These include:

  • Extending the time period in which to spend the funds. The PPPFA gives loan recipients until the earliest of December 31, 2020 or 24 weeks (about 6 months) from the date of loan origination to spend the money.
  • Making it easier to get forgiveness if you can’t rehire or reopen. Although the prior regulations gave some flexibility in allowing business owners to get forgiveness even if their businesses could not rehire its workers, the new statute makes clear that if you can’t rehire the same or new workers, or cannot reopen due to COVID-19 safety requirements, and can prove it — you may still be eligible for forgiveness.
  • Changing the Ratio. Regulations had imposed a “75% rule”, requiring that at least 75% of the PPP funds be paid for payroll (a requirement that was not in the statute itself). Now, Congress has lowered that to 60%, allowing up to 40% to be paid toward other Covered Expenses and still be forgiven. The definition of “Covered Expenses” has not changed.
  • More time to pay back the loan. Originally, these loans entered repayment six months after origination. Recognizing that extending the time to spend also affects paying back, Congress amended the PPP to allow repayment to start on the day your forgiveness is determined. Only then will you have to start repayment.
  • Deferment of Payroll Taxes Now Permitted. THE CARES ACT gave businesses a choice between taking a PPP loan or deferring payment of payroll taxes under other sections of the Act. The PPPFA strikes that prohibition. Be sure to talk to a tax advisor as to whether or not it makes sense for you to defer payment of Federal payroll taxes.
  • Once the President signs the PPFA, we will do an updated webinar for all of our clients and friends. This is going to require that the SBA amend the forgiveness application that it previously provided, and change the “how do I spend this?” for many business owners. Remember, these issues are changing daily, so follow this page for the latest news.