Updates to the Paycheck Protection Program

On June 5, 2020 President Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA), which passed the House on May 27, 2020 by a 417-1 margin, and unanimously passed the Senate on June 3, 2020.

The new law changes the following issues included in the original Payroll Protection Program (PPP) which was created under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act):

  1. The PPPFA reduces the amount of the loan proceeds needed to spend on payroll from 75% to 60%, which will increase the amount of the loan proceeds available to spend on other expenses from 25% to 40%. It is important to note that the expenses included in the new 40% category have not changed and still includes payments for rent, mortgages, utilities and interest on loans.
  2. The PPPFA has extended the time to spend down the loan proceeds from eight weeks to 24 weeks (which will bring the period to spend the loan proceeds to roughly the end of 2020).
  3. The PPPFA does not require businesses to wait for 24 weeks to pass before applying for loan forgiveness. Businesses have the option of applying after eight weeks if they prefer.
  4. The employee rehire date, for their salaries to qualify for loan forgiveness, has been extended from June 30, 2020 to December 31, 2020, providing a much-needed six months for businesses to hire and pay returning workers and make up for any “gaps” in potential forgiveness.
  5. The PPPFA adds the following exceptions to rehiring employees and still receiving loan forgiveness:
  6. The business in unable to rehire an individual who was an employee as of February 15, 2020,
  7. The business is able to demonstrate an inability to hire similarly qualified employees by December 31, 2020, and
  8. The business is able to demonstrate an inability to return to the same level of business activity it was experiencing prior to February 15, 2020.

 

We suggest that clients document as thoroughly as possible their efforts to rehire employees through December 31, 2020, and the related results.

  1. Businesses will now have five years to repay the loan or portion of the loan that is not forgiven. In addition, the first payment of the loan will be deferred for six months from the date the Small Business Administration makes a decision on the eligibility of loan forgiveness.
  2. Lastly, the PPPFA will allow borrowers to take advantage of the provision included in the CARES Act that allows for the deferral of payment of the employer’s portion of Social Security taxes.

 

After you have reviewed the above changes to the original PPP, please feel free to contact us with questions, or if clarification on your individual loan issue is required.