On June 5, 2020, President Donald Trump signed H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020, into law. As a result, the Paycheck Protection Program (PPP) rules have changed once again.
Significant changes to the PPP program include:
Borrowers can choose to extend the 8-week period to a 24-week period, or they can choose to keep the original 8-week covered period if, for example, the borrower achieves full forgiveness by then. However, the covered period cannot extend beyond Dec. 31, 2020, meaning borrowers who are funded after July 16, 2020 may have their window cut short. Borrowers may not want to wait until the 24-week covered period has passed, as some borrowers (and lenders) may want to get the loans off their balance sheets as quickly as possible so they can apply for other programs or regular debt.
- The forgiveness threshold requiring 75 percent of funds be spent on payroll has been dropped to 60 percent; however, borrowers must spend at least 60 percent on payroll or none of the loan will be forgiven. This is in contrast to the current legislation, which reduces forgiveness if less than 75 percent is spent on payroll but does not eliminate it.
- Borrowers can use the 24-week period to restore their workforce and employee compensation to the levels required for full forgiveness. This must be done by Dec. 31, 2020 to qualify for the safe harbor provisions.
- The requirements have also been slightly relaxed and now include an option for a good-faith certification by the borrower that they could not rehire or regain prior business activity levels, rather than a purely mathematical provision. If borrowers certify that they were not able to fully restore their workforce because they either (1) could not find qualified employees to hire or (2) were unable to restore business operations to pre-pandemic levels due to COVID-19-related operating restrictions (such as social distancing, etc.), forgiveness is not impacted. As provided for under prior guidance, borrowers are also allowed to exclude employees who turned down good-faith offers to be rehired at the same hours and wages as before the pandemic.
- The minimum period for loan repayment has been extended from two years to five years.
- The deferral of employer payroll taxes will not be halted by the granting of forgiveness as that exception has been removed.
- An open question is the tax deductibility of expenses that were paid under PPP loans if those loans remain unforgiven at year end.
Looking ahead, both parties in the Senate identified “further technical fixes.” So not unexpectedly, stay tuned for more changes in the future.
If you have any questions on the above, GHJ’s COVID-19 Response Team has as an experienced team of consultants specializing in COVID-related laws and programs and can provide the tools your business needs to help it recover from this business disruption. We are here to assist organizations to succeed in these very challenging times.