The Paycheck Protection Program (PPP) Flexibility Act was enacted in Washington last week to address concerns expressed by business owners and give borrowers additional time and flexibility to use the loan proceeds.
The PPP was enacted as part of the March 27 CARES Act to provide quick relief to small business owners experiencing economic hardship due to the response to the coronavirus. The program promised low interest, possibly forgivable, loans of up to $10 million, for eight weeks of payroll plus 25% more for rent, mortgage, utilities, etc. However, struggling businesses quickly experienced real world obstacles in meeting the tight loan forgiveness period and the requirement that 75% of the loan be spent on payroll. Businesses were given until June 30 to restore full-time employment and salary levels for any changes made between February 15 and April 26 and all loan amounts had to be expended within eight weeks of receiving the loan.
The new law will provide greater flexibility to small business owners by:
- Allowing forgiveness for expenses beyond the original 8-week covered period to 24 weeks (through December 31, 2020) and extending the rehiring deadline;
- Increasing the current limitation on non-payroll expenses (such as rent, utility payments and mortgage interest) for loan forgiveness from 25 to 40 percent, but falling below the 60% threshold for payroll will eliminate, rather than reduce, loan forgiveness;
- Extending the time to rehire workers from June 30, 2020 to December 31, 2020;
- Providing an exception for businesses that cannot reopen fully due to restrictions, such as customer capacity, by allowing for documentation of the inability to rehire employees or similarly qualified workers or of compliance with government issued health and safety mandates and guidance;
- Extending repayment deferment from six months until after a forgiveness decision is made or ten months after the eight or twenty-four week period;
- Extending terms for loans made after June 5, 2020 from two to five years (terms for loans made prior can be renegotiated with lenders);
- Ensuring full access to payroll tax deferment for businesses that take PPP loans.
For a summary and text of the Paycheck Protection Program Flexibility Act of 2020 CLICK HERE.