On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) into law, which was unanimously passed by the U.S. Senate on June 3, 2020. This update to the Paycheck Protection Program (“PPP”) makes many important changes that are designed to help business owners by relaxing some of the timeframes and forgiveness criteria. The changes made by the enactment of the PPPFA are summarized below.
Initially, the PPP loan proceeds were to be used to cover payroll costs, mortgage interest, rent, and utility costs over the 8 week period immediately following the loan origination. Through the PPPFA, that period has been extended to 24 weeks from the date of loan origination or December 31, 2020, at the latest. Employers have the option of preserving the 8 week period if preferred. Additionally, in order to be eligible for loan forgiveness, the PPP initially required that 75% of the loan be used for payroll expenses. The applicable percentage has now been reduced to just 60%. The term of the PPP loans have also been extended from 2 years to 5 years.
The PPPFA also extends the period of time during which employers can rehire their employees in order to avoid a reduction in loan forgiveness. That period has been extended to December 31, 2020. Employers will also be given an exemption if, despite good faith efforts, they are unable to rehire their employees that were employed on February 15, 2020 (or hire replacement employees) by December 31, 2020. Furthermore, if employers are unable to return to the same level of business they had on February 15, 2020 due to compliance with governmental orders or guidance “related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19” from March 1, 2020 to December 31, 2020, they will be given an exemption to prevent a reduction in loan forgiveness for failure to hire/rehire employees. The PPPFA also gives employers seeking PPP loan forgiveness the ability to defer certain payroll taxes.
As always, the Business Group at Stock and Leader can help business owners navigate their PPP loans or any other matter relating to the CARES Act. Contact a member of Stock and Leader’s COVID-19 Business Response Team for further guidance: