Yesterday evening the Senate passed the Paycheck Protection Program Flexibility Act which will provide much needed changes to the PPP loan program to make it easier for businesses to use the funds to maintain employment and cover necessary non-payroll costs. With the extension from 8 to 24 weeks, all businesses should be able to use their full loan amounts if they were unable to before.
The Paycheck Protection Program Flexibility Act makes the following changes:
- Extend loan forgiveness period. Extend the forgiveness period from eight to 24 weeks.
- Reduce the 75-25 rule.The bill reduces the payroll requirement from 75 percent to 60 percent for full forgiveness.
- Allow payroll tax deferment. Allow PPP recipients to both defer payroll tax and receive assistance via the PPP.
- Extend rehiring deadline. Extend the June 30, 2020 rehiring deadline to December 31, 2020.
- Modify rehiring rules. Allow companies that document their inability to rehire workers employed as of February 15, 2020 because businesses were following federal requirements for sanitization or social distancing to maintain their loan forgiveness amounts.
- Extend deferral period. Instead of the current six-month deferral period, the bill would allow borrowers to defer principal and interest payments on PPP loans until SBA compensates lenders for any forgiven amounts. For borrowers that do not apply for forgiveness, they would have at least ten months after the program’s expiration to begin making payments.
- Five-year loan maturity period. PPPFA would establish a minimum loan maturity period of five years for future borrowers, eliminating the two-year deadline under current SBA rules. The change is prospective, responding to concern from banks that a retroactive provision would jeopardize compliance for their existing loans issued under the previous guidance. The language would not prohibit lenders from renegotiating terms with existing loan recipients to provide for five-year maturity.
President Trump is expected to sign the bill this week to ensure businesses are able to take advantage of these changes. HARDI will update our materials as SBA releases guidance on the changes, however the basics of the plan such as qualifying payroll and non-payroll costs will not be changing because of this legislation. The biggest change that borrowers should implement as soon as the bill is signed is to continue to use PPP funds beyond the 8-week (56 day) period.