Paycheck Protection Program Flexibility Act Update

Updated on June 4, 2020 at 1:40 p.m.

On June 3, 2020, the Senate passed the Paycheck Protection Program Flexibility Act (The Act) providing additional relief and guidance surrounding the Paycheck Protection Program. The Bill now goes to the President for signature.

Maturity Date Changes

Prior to the Act, any portion of a PPP loan not forgiven was required to be paid back within two years. The Act extends this period to five years for loans completed after the Act is signed. However, you may be able to work with your bank to adjust the terms of your note.

Loan Forgiveness Changes

The term for computing forgiveness is extended from eight weeks (or June 30, 2020) to twenty-four weeks or December 31, 2020, whichever comes first. Note that the $100,000 annualized salary cap remains. Taxpayers may still use the eight week period to compute forgiveness.

Previously, taxpayers had until June 30th to return to pre-February 15th headcount and business activity levels or risk a reduction in forgiveness. The Act provides relief for employers unable to rehire or find similarly qualified workers by extending this date to the end of the year.

Additional relief is provided for businesses unable to return to pre-pandemic business activity levels as a result of complying with requirements established or guidance issued by the Secretary of Health and Human Services, the CDC, or OSHA related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.

The PPP originally required taxpayers to spend 75% of loan proceeds on payroll costs to receive loan forgiveness. The Act reduces the required amount to achieve forgiveness to 60%.

Deferral Period

The Act eliminates the six-month payment deferral and allows borrows to defer interest and principal payments on loans until the SBA compensates the lenders for any forgiven amounts.

For borrowers not seeking forgiveness, the deferral period is ten months.

Payroll Tax Deferral

The Act allows a PPP recipient to defer the 6.2% employer share of 2020 social security tax to 2021 and 2022, even if the PPP loan is forgiven. This deferral was previously allowed only until the PPP loan was forgiven.

While the Act adds many favorable provisions, there are still several unknowns surrounding many topics, including the forgiveness computations. Additional guidance from the SBA is expected in the future.