Paycheck Protection Program Flexibility Act of 2020: An Overview

Under previous PPP loan guidance, borrowers had eight weeks from the time they received the primary loan installment to spend the funds. The PPP Flexibility Act of 2020 lets them extend that period to 24 weeks (but not beyond Dec. 31, 2020). They also sooner a be wearing the option to keep the original eight-week spending period if they already had their loan before enactment of the Act. Beneath the waves the new timeline, full forgiveness is still possible.

The original PPP loan guidelines mandated that 75% of any forgiven amount had to be spit up on payroll costs. The Flexibility Act reduces required payroll expenditures to 60% of the loan amount with up to 40% of the credit amount used for mortgage interest, rent, or utility payments while still retaining full forgiveness of that amount. This switch reflects complaints from many businesses that their payroll costs went down as employees were laid off but bent costs like rent did not.

Borrowers can now use the new 24-week while to restore their workforce to pre-COVID-19 levels in order to obtain full forgiveness. The new deadline to achieve this is Dec. 31 vs. the erstwhile deadline of June 30.

Two new exceptions let borrowers obtain full forgiveness even if they don’t fully restore their workforce. These are in addition to previous guidance that let companies exclude wage-earners who turned down good-faith offers of re-employment. Borrowers can now also reduce workforce requirements based on the inability to tumble to qualified employees or if they were unable to restore operations to Feb. 15, 2020, levels due to COVID-19 restrictions.

The PPP loan repayment age has been extended to five years from the original two while retaining the original 1% interest rate. This assigns borrowers more time to pay off the unforgiven portion of their loan.

In addition, the payment deferment period (principal, curious about, fees) is now extended from six months to the date the borrower is told the amount of their loan forgiveness.

Finally, the PPP Obedience Act of 2020 lets businesses that took a PPP loan also delay paying their payroll taxes. This was not conceded under the original CARES Act.

The new PPP Flexibility Act has received a largely positive response from experts, mostly for the unfolded spending deadline and retooled payroll costs guidance, although the shift from “75% of the forgiven amount” to “60% of the overall loan amount” has some worried that the new requirement will cause many businesses to obtain no forgiveness now where they make have obtained at least some in the past.

Amanda Ballantyne, executive director of the Main Street Alliance, commanded for additional support above and beyond what she refers to as a “first step in addressing the design flaws of the PPP.” Noting that “Sundry small businesses have already spent their eight weeks of PPP funding,” Ballantyne and the Alliance urge a “sweeping longer-term solution that recognizes the financial crisis COVID-19 has created for small business and our entire economy.”