The PPP Just Got Better
Client Alerts | June 10, 2020 | Securities and Corporate Finance
The Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”) was signed into law on June 5, modifying the terms of the Paycheck Protection Program (the “PPP”) created by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The full text of the law can be found here, and our previous coverage of the PPP and the CARES Act can be found here.
Broadly speaking, the Flexibility Act liberalizes the CARES Act to make it easier for businesses to capture the economic benefits of the PPP loans. Key highlights of the Flexibility Act include:
- Extending the minimum maturity for PPP loans from two years to five years, to the extent the loan is not forgiven.
- Extending the “covered period” in which loan proceeds can be forgiven until the earlier of (1) 24 weeks after the origination date and (2) December 31, 2020. Previously, the covered period was the earlier of eight weeks after the origination date or June 30, 2020. However, borrowers that received a loan before the Flexibility Act was enacted may still elect an eight-week covered period.
- Extending the date in which a recipient must rehire employees – to avoid a reduction in the forgiveness amount – from June 30, 2020 to December 31, 2020.
- Providing that a reduction in employees will not result in a reduction in the forgiveness amount if the loan recipient is able to document (1) an inability to rehire employees, (2) an inability to hire similarly qualified employees, or (3) an inability to return to the same level of business activity that it had before February 15, 2020.
- Mandating that only 60% of the forgiven amount must be used for payroll expenses. Previously, the U.S. Department of Treasury promulgated a less forgiving rule that required 75% of the forgiven amount to be used on payroll expenses.
- Extending the payment deferral period to the time that the forgiveness amount is remitted to the lender. Previously, the deferral period was between six months and one year. Borrowers will be required to apply for forgiveness for a loan within 10 months of the last day of the “covered period.”
- Mandating that PPP borrowers that receive forgiveness are no longer excluded from the delay of payment of employer payroll taxes under Section 2302 of the CARES Act.
As with the CARES Act, the implementation of the Flexibility Act will require further guidance and rulemaking from the Treasury Department. While the Flexibility Act was generally intended to make forgiveness of PPP loans more available to borrowers, the specific provisions are vague and borrowers should consult with their advisors and await further direction as they prepare their forgiveness applications.