PAYCHECK PROTECTION FLEXIBILITY ACT OF 2020: IMPORTANT CHANGES FOR PPP LOAN BORROWERS
The Paycheck Protection Program Flexibility Act of 2020 (the “Act”) was signed into law making changes to the Paycheck Protection Program (the “PPP”). Some highlights are as follows:
• Extension of Covered Period: The eight-week Covered Period has been changed to the earlier of: (i) 24 weeks after the date of loan origination; or (ii) December 31, 2020. This allows Borrowers a longer period of time to utilize their PPP Loan amount on forgivable expenses.
• Application for certain Eligible Recipients: A Borrower that received a PPP Loan before the date of enactment of this Act may elect for the Covered Period applicable to such PPP Loan to end on the date that is 8 weeks after the date of the origination of such PPP Loan.
• Limitation on Forgiveness (Percentage of PPP for Payroll and Covered Non-Payroll Expenses): Instead of 75% on payroll and 25% on covered non-payroll expenses; now, a Borrower must use a minimum of 60% of their PPP Loan on payroll costs, and may use up to 40% of such amount on covered non-payroll expenses. It is important to note that Borrowers are required to meet this threshold to receive any forgiveness of their PPP Loan. Consequently, Borrowers who do not spend at least 60% of their PPP Loan on payroll costs will not have any of their PPP Loan forgiven.
• Extension of Rehiring and Salary or Wage Level Restoration: The date by which employees must be rehired and their salary or wages restored, in order to qualify for PPP Loan forgiveness, has been extended from June 30, 2020 to December 31, 2020.
• Exemption Based on Employee Availability: An exemption in the eligibility for PPP Loan forgiveness has been created for Borrowers that are unable to rehire an employee if the business is unable to return to the same level due to compliance with maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19 or an inability to hire similarly qualified employees. Borrowers need documentation to support this exemption.
• Delay of Payment of Employer Payroll Taxes: Allows for the deferral of payroll taxes until December 31, 2020 with 50% due December 31, 2021 and the remaining 50% due on December 31, 2022.
• Extension of Deferral Period: Borrowers are entitled to complete payment deferment relief for PPP Loans, including payment of principal, interest, and fees, until the date on which the amount of PPP Loan forgiveness determined under section 1106 of the CARES Act is remitted to the lender. If a Borrower does not apply for forgiveness within 10 months after the last day of the Covered Period, the Borrower will make payments of principal, interest, and fees starting on the day that is not earlier than the date that is 10 months after the last day of the Covered Period.
• PPP Loan Maturity: PPP Loans with a remaining balance after application of PPP Loan forgiveness have a minimum maturity of 5 years.
The Paycheck Protection Flexibility Act of 2020 can be located here: https://www.congress.gov/bill/116th-congress/house-bill/7010/text
The Attorneys at Levene Gouldin & Thompson, LLP are available to provide advice and counsel concerning these new statutory obligations and other matters related to COVID-19.