On June 3rd Congress approved the Paycheck Protection Program Flexibility Act, which the President signed today. The Act provides additional flexibility to borrowers in order to maximize the amount of their debt to be ultimately forgiven under the CARES Act. As has been the case repeatedly since the beginning of this program, there is still much guidance expected to help implement this new law. Here are some of the important changes related to loan forgiveness:
PPP funds may now be spent over a covered period of 24 weeks (but no later than December 31, 2020), increased from the original eight weeks. However, the option to use the eight week period remains.
Payroll expenses must now constitute 60% of funds spent, decreased from the original 75%. However, it appears that there currently is no proportionate forgiveness if that 60% is not met. Under the original program the forgiven amount was decreased only by the percentage payroll expenditures fell short of the 75% mark.
Employers now have until December 31, 2020, rather than June 30, to bring their full-time equivalent (FTE) employees and salary amounts up to the level of the base measurement period as a safe harbor to avoid decreases in loan forgiveness.
New forgiveness safe harbor provisions have been added related to FTE reductions:
If the employer, in certain circumstances, is not able to rehire staff employed as of February 15, 2020 or similarly qualified persons, by December 31, 2020 or
If the employer is not able to return to its February 15, 2020 level of operations due to compliance with various federal government orders.
For loan amounts that are not forgiven the repayment period is extended from two to five years. While this is applicable only for loans issued after this law is signed, earlier borrowers can renegotiate their loan terms with the issuing bank.
Payroll tax deferrals are now available to all PPP borrowers, even if granted loan forgiveness.
Again, we want to stress that for full understanding of the law in order to properly spend funds and apply for forgiveness, promised additional guidance and clarification is needed. As more information becomes available we will provide updates and be available to assist with your questions. And, if these new terms make applying for a PPP loan beneficial to you, there is still over $120 billion in funds for new borrowers available under this program. Reach out to a participating lender and start the process now.
Source: Mann Weitz & Associates