Paycheck Protection Program Flexibility Act Expands Loan Forgiveness

Paycheck Protection Program PPP Loan forgiveness application form.

Legislation extends coverage period, reduces payroll requirement

Legislation to expand some provisions of the Paycheck Protection Program has been passed by Congress and signed by the president.

The Paycheck Protection Program Flexibility Act is intended to make the PPP – a centerpiece of federal relief efforts related to the COVID-19 pandemic – more favorable to restaurants, retailers, and other businesses.

Many business owners complained that they could not meet the timelines contained in the original PPP, which required loan proceeds received under the program to be expended within an eight-week period, due to continuing shutdown orders and workplace safety rules from government agencies. The timelines in the PPP are important because they determine whether loans will be fully or partially forgiven.

Loan forgiveness is vital to business owners whose 2020 revenues are being crushed by government-ordered closures to help prevent the spread of COVID-19. Those who have not applied for PPP loans because they don’t want to risk taking on more debt at a time of reduced income may now decide to access the relief program.

The Paycheck Protection Program Flexibility Act will:

  • Extend the “covered period” under which small businesses can spend the loan proceeds from eight weeks to 24 weeks, or until December 31, 2020.  You may still elect an eight-week period, if desired. 
  • Remove limits on loan forgiveness for small businesses that document that they were unable to rehire employees, hire new employees or return to the same level of business activity as before the virus.
  • Expand the 25% cap to use PPP funds on nonpayroll expenses, such as rent, mortgage interest and utilities, to 40% of the total loan. That lowers the 75% requirement for payroll expenses to 60% to get maximum forgiveness.
  • Allow small businesses to take a PPP loan and qualify for a separate tax credit to defer some payroll taxes currently prohibited after the loan is forgiven. This provision allows PPP recipients to continue deferring payroll taxes under a provision of the Families First Coronavirus Response Act.
  • Extend the loan terms for any unforgiven portions that need to be repaid from two years to five years, at 1% interest.  
  • Give small businesses more time to rehire employees or to obtain forgiveness for the loan if social-distancing guidelines and health-related actions from the Centers for Disease Control and Prevention or other agencies prevent them from operating at the same capacity as of February 15, 2020.
  • Extend the period for when a business can apply for loan forgiveness, from within six months to within 10 months of the last day of the covered period, before it must start making interest and principal payments. Under the new bill, PPP loan interest and payment of principal and fees will be deferred until the loan is forgiven by the lender.

Created by the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Paycheck Protection Program offers loans up to $10 million to businesses with 500 or fewer employees. The program is being administered through local financial institutions such as banks and credit unions, which process applications and determine eligibility under the program’s guidelines. Through May more than 4 million PPP loans had been issued, totaling more than $510 billion.

Demand for PPP loans has slowed in recent weeks and there is more than $100 billion still available for lending, which some business groups attribute to concerns about the tight timelines required by the original legislation.  If you haven’t already, you have until June 30, 2020, to apply for a PPP loan.

Please contact us for information and guidance as to how a PPP loan may benefit your business.