Congress has taken action to provide more flexibility for when and how businesses may use Payroll Protection Program (PPP) loan proceeds and maintain eligibility for forgiveness. The Paycheck Protection Program Flexibility Act of 2020 was signed into law June 5, 2020, after having cleared the Senate on a voice vote two days ago. The text of the new law can be seen here.The new law reduces the percentage of PPP loan funds required to be spent on payroll from 75% to 60%, extends the window for allowable use of loan funds from eight weeks to 24 weeks, extends the deadline for rehiring workers from June 30 to December 31, 2020, extends the timeline for repaying PPP loans to five years and allows for a 10-month deferral on beginning repayment, and allow companies that receive loan forgiveness to defer payroll taxes.
The summary of the House bill, which ultimately became law without amendment, states:
“This bill modifies provisions related to the forgiveness of loans made to small businesses under the Paycheck Protection Program implemented in response to COVID-19 (i.e., coronavirus disease 2019).
Specifically, the bill establishes a minimum maturity of five years for a paycheck protection loan with a remaining balance after forgiveness. The bill also extends the covered period during which a loan recipient may use such funds for certain expenses while remaining eligible for forgiveness. The bill raises the non-payroll portion of a forgivable covered loan amount from the current 25% up to 40%.
The bill extends the period in which an employer may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a paycheck protection loan. However, the forgivable amount must be determined without regard to a reduction in the number of employees if the recipient is (1) unable to rehire former employees and is unable to hire similarly qualified employees, or (2) unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19.
Additionally, the bill revises the deferral period for paycheck protection loans, allowing recipients to defer payments until they receive compensation for forgiven amounts. Recipients who do not apply for forgiveness shall have 10 months from the program’s expiration to begin making payments.
The bill also eliminates a provision that makes a paycheck protection loan recipient who has such indebtedness forgiven ineligible to defer payroll tax payments.
Lastly, the bill is designated as an emergency requirement pursuant to the Statutory Pay-As-You-Go Act of 2010 (PAYGO) and the Senate PAYGO rule.”
Stay tuned. We may see additional changes to the PPP from Congress along with updated FAQs, interim rules, and an updated PPP loan forgiveness application form in the coming weeks.