On June 5, 2020, H.R. 710, the Paycheck Protection Program Flexibility Act of 2020 (PPPFA) was signed into law. The PPPFA amends several provisions of the CARES Act related to the Paycheck Protection Program (PPP). The PPP is a program designed to help small businesses pay their employees during the COVID-19 pandemic by providing loans that can be fully forgiven if the business uses the loan proceeds for payroll and certain other expenses and if it retains or rehires employees and maintains or restores their pre-COVID-19 salary levels.
The PPPFA addresses concerns expressed by small businesses regarding the requirements they had to meet to receive loan forgiveness. It does so by making several changes to those requirements including the following:
- The percentage of loan proceeds that must be spent on payroll in order for the loan to be forgiven was reduced from 75% to 60%. Businesses may now spend up to 40% on the other eligible expenses – rent, mortgage interest, and utilities.
- Businesses will now have 24 weeks from the time they receive the funds — or December 31, 2020, whichever is earlier — to spend the funds and qualify for forgiveness. Originally, they had to spend the funds in 8 weeks. (Businesses with existing loans may choose to retain the 8 week requirement.)
- The PPPFA provides that for loans made after the Act was enacted, a business will have 5 years to repay a loan or portion of a loan that is not forgiven. The PPP originally required repayment in 2 years. The Act also provides that businesses and their lenders may mutually agree to modify the maturity term for loans existing before the PPPFA was enacted.
- The PPPFA removes a provision of the CARES Act that prohibited PPP recipients from deferring the forgivable portion of the loan from their payroll taxes.
- The PPP originally provided that businesses had until June 30, 2020, to rehire employees and reinstate salary cuts of more than 25% in order for the loan to be forgiven. The PPPFA extends the deadline to December 31, 2020. It also provides exceptions from having the loan forgiveness reduced if the business can document (1) it was unable to rehire employees who were employed on February 15, 2020, or hire similarly qualified employees for unfilled positions by December 31, 2020, or (2) it was unable to retain the same level of business activity at which it was operating before February 15, 2020, due to compliance with federal requirements or guidance related to the maintenance of standards for sanitation, social distancing, or other worker safety requirements related to COVID-19.
- The PPP allows businesses to defer paying the portion of the loan that is not forgiven. The PPPFA extends the deferral period from 6 months to the date on which the amount of the loan that is forgiven is remitted to the business.
As of June 5, the Small Business Administration had approved more than 4.5 million PPP loans. The small businesses that obtained those loans need to be aware of the Paycheck Protection Program Flexibility Act of 2020 and of the important changes it made to what a business has to do if it wants its PPP loan to be forgiven.
For information on how what's needed and how CT can help, read Small Business Payroll Relief – Be Prepared.