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PPP Flexibility Act UPDATE

The Senate unanimously passed H.R.7010, the Paycheck Protection Program Flexibility Act of 2020, and the President immediately signed it into law.  

This new Act allows more flexibility for borrowers taking advantage of PPP funds.  It basically extends the time period for businesses to use the funds and changes the ratio for payroll to other fixed costs.

The following is an overview of the main points:

  • Borrowers of PPP funds can choose to extend the loan period to 24 weeks, or they can keep the original eight-week period. This change was made in order to help borrowers reach full, or almost full, forgiveness.
  • Borrowers can use the 24-week period to restore their workforce levels and wages to the levels in place prior to the pandemic declaration, which is required for full forgiveness.  This must be done by the deadline of December 31st, instead of the original deadline of June 30th.
  • The legislation includes new exceptions allowing borrowers to achieve full loan forgiveness even if they don’t fully restore their workforce.
    • There was already an allowance so that borrowers could exclude from their calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic.
    • The new bill allows borrowers to make an adjustment because they could not find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-19 related operating restrictions.
  • The payroll expenditure requirement drops to 60% from 75%.  This change requires borrowers to spend at least 60% of the funds on payroll.  If not, none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if that threshold isn’t met.
  • Borrowers now have five years to repay any unforgiven amount of the loan instead of the original two-year repayment time period. The interest rate remains at 1%.
  • Borrowers can now defer the employer’s portion of Social Security payroll taxes for two years. Half of the payroll taxes will be due in 2021, with the rest due in 2022.

Given the extended coverage period and the reduced payroll ratio, most PPP borrowers should be able to achieve full loan forgiveness without continued planning strategies.

If you find that you need further assistance or have any questions about the new guidance, please contact us.  We will continue to closely monitor these and any further developments.

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