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Paycheck Protection Program Flexibility Act: What Changes Are Coming?

On June 3, 2020, the Senate passed the Paycheck Protection Program Flexibility Act (the Act) that made significant changes to the PPP Loan Program. It’s expected that the President is going to sign the Act into law in the near future. We’ve summarized three key changes to the program, and the impact they may have on loan forgiveness. It’s important to note that the U.S. Small Business Administration (SBA) and the U.S. Department of the Treasury could provide guidance that would clarify some of the items contained in the Act.

Key Updates to the Program:

  • The covered period for forgiveness has been extended from 8 weeks to 24 weeks, with a mandatory end date of December 31, 2020. If your loan was disbursed on or before July 16, 2020, you’ll get the benefit of the full 24 weeks. However, any loans disbursed after July 16, 2020 will have a mandatory end date for the covered period of December 31, 2020. Overall, this should allow for more loans to be fully forgiven.
     
  • To receive loan forgiveness, a business must use at least 60% of the covered loan amount for payroll costs, and may use up to 40% for other qualified expenses (i.e. utilities, mortgage interest, rent, or lease). As written, this seems to create a cliff situation—where if 60% of the loan amount isn’t used for payroll, none of the loan is forgiven. For example, if a business had a $100,000 loan and used $55,000 for payroll and $15,000 for other qualified expenses, none of the loan would be forgiven (as the payroll costs were less than 60% of the loan amount). We’re unsure if this is the intent of Congress, and expect further guidance on this from the SBA and Treasury.
     
  • The updates allow a business that received a covered loan before the date of enactment to elect the original 8-week period as the covered period. This would allow a business that expects its loan to be 100% forgiven at the end of the original 8-week period to apply for forgiveness at that point.

In addition, the Act contains some other changes that may impact loan forgiveness:

  • The June 30, 2020 date in the safe harbor provision for bringing back employees has been extended to December 31, 2020. This will allow businesses more time to eliminate any reductions in the amount of full-time equivalent (FTE) employees that occurred between February 15, 2020 and April 26, 2020. 
     
  • A clause was added that eliminates the proportionate reduction in loan forgiveness based on FTEs if the business is able to document in good faith:
    • An inability to rehire individuals who were employees on February 15, 2020 and hire a similarly qualified individual to fill the position
    • An inability to return to the same level of business activity experienced before February 15, 2020 due to compliance with requirements or guidance related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 (issued during the period beginning on March 1, 2020, and ending December 31, 2020) and enforced by:
      • The Secretary of Health and Human Services (HHS)
      • The Director of the Centers for Disease Control and Prevention (CDC)
      • The Occupational Safety and Health Administration (OSHA)
         
  • The maturity date of the loan was extended from 2 years to at least 5 years. The impact of this may not be significant, as other changes noted above should increase the number of loans that are 100% forgiven.
     
  • Changes the deferral of payment period on the loan until the date on which the amount of forgiveness determined under section 1106 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act is remitted to the lender.

To discuss your unique circumstances, please reach out to Dan Morrill at (413) 726-6857 or dmorrill@wolfandco.com.