PPP Loan Update
Congress has adopted legislation to extend access to the Paycheck Protection Program (“PPP”) loan program through August 8, 2020. The deadline for application was previously set at June 30, 2020. However, given that over $130 billion of funds remained available, the PPP application was extended to August 8, 2020.
Additional flexibility for PPP loan borrowers was adopted in June as outlined more in detail below.
New legislation signed into law on June 5, the PPP Flexibility Act, provides new flexibility for borrowers and will make forgiveness of the PPP loans easier to attain.
Among the major changes are an extension of the eight-week period in which loan proceeds could originally be used and a relaxation of the 75-percent rule that limited the amount of non-payroll costs that could be forgiven.
Here are the key changes that became law as a result of the legislation:
1. The original 8-week timeframe is extended to 24 weeks for businesses who need more time to spend the funds. The amount of funding does not increase, only the period of time during which it can be used.
2. The requirement that 75 percent of the forgiveness amount must be spent on payroll costs is relaxed to 60 percent. This means that businesses have greater flexibility to use the funds for non-payroll costs. The SBA and the U.S. Treasury Department clarified that if a borrower spends less than 60% of the PPP loan amount for expenses that otherwise would be forgivable for payroll, state payroll taxes, group health insurance, and retirement plans during the 8-week or 24-week testing period, then that borrower will get some forgiveness rather than no forgiveness.
3. The previous “safe harbors” provided that if a borrower restored its workforce and compensation to pre-pandemic levels by June 30, it would not face a penalty to its forgiveness calculation. The new rule is that the full restoration does not need to occur until December 31 to avoid the adjustment penalty.
4. Additional “safe harbors” are added. Borrowers will not be penalized if they cannot find qualified employees after a good-faith search, or if they were unable to restore business operations to pre-pandemic level (February 15, 2020) due to COVID-related operating restrictions. The most recent guidance also provides that borrowers will not be penalized under both the FTE and compensation adjustments for the same reduction in workforce.
5. Borrowers who received PPP loans on or after June 5 will have five (5) years to repay any non-forgiven amounts instead of two (2) years, and lenders are permitted by mutual agreement to extend existing loans from two (2) years to five (5) years.
6. Businesses receiving PPP forgiveness will now be permitted to defer payroll tax. The provision permits businesses to defer up to one-half of payroll taxes coming due in 2020 and pay those taxes in 2021 and 2022. The deferral had been previously limited to businesses not receiving PPP forgiveness.