Last night the U.S. Senate passed the Paycheck Protection Program Flexibility Act of 2020, a bill previously approved by the U.S. House of Representatives. President Trump is expected to sign this bill, which provides several long-awaited changes to the Paycheck Protection Program (PPP) that was previously enacted by the U.S. Congress as part of the CARES Act. These material changes are favorable for many borrowers of PPP loans due to the increased flexibility now provided in terms of loan terms and potential forgiveness.
The highlights of the Act include:
Covered Period – The covered period during which borrowers may choose to incur eligible costs has been increased from 8 to 24 weeks. The increased period will make it easier for borrowers with different business models and circumstances to avail themselves of loan forgiveness as the economic recovery evolves.
Forgiveness Limitations – Previous guidance established by the Small Business Administration (SBA) required that 75% of PPP loan proceeds must be used for payroll costs in order to qualify for maximum loan forgiveness. The Act changes this requirement such that at least 60% of the PPP loan must now be used for payroll costs while the remaining loan proceeds must be used for any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), any payment on any covered rent obligation, or any covered utility payment.
Workforce Restoration – The Act provides borrowers additional time during which to restore their workforce levels and wages to pre-pandemic levels in order maximize loan forgiveness. This must now be done within 24 weeks from the time a borrower received their loan and no later than December 31, 2020.
Forgiveness Exemptions – Prior guidance issued by the SBA provided exemptions in regards to a borrowers’ inability to restore their workforce due to an employee’s refusal of a good faith offer of employment from the borrower. The Act adds additional exemptions if the borrower is unable to hire qualified employees or unable to restore business operations to February 15, 2020 levels due to compliance with COVID-19 restrictions.
Loan Terms – Prior guidance issued following passage of the CARES Act limited PPP loan terms to two years. The Act overturns this period and provides that PPP loans shall have a minimum maturity of 5 years. Additionally, the Act changes the original terms for PPP loan payment deferment from 6 months to 10 months.
Payroll Tax Delay – Borrowers seeking loan forgiveness are now permitted to defer payment of payroll taxes due through December 31, 2020. Such deferred payments must be paid in equal amounts by December 31, 2021 and December 31, 2022.
We are working with many clients in regards to determining their potential loan forgiveness under the PPP. The Act changes the model we’re using and borrowers should reference an updated loan forgiveness calculator that reflects the latest guidance as well as new provisions under the Act (this template will continue to be updated as PPP guidance evolves). We strongly encourage clients to re-evaluate the disposition of their unspent PPP loan proceeds in consultation with their advisors and finance team.
As a reminder, RS&F is able to assist clients to determine loan forgiveness and address other provisions of the CARES Act. Please contact your RS&F Client Advisor for assistance with PPP loan forgiveness or other program questions.