The new “Paycheck Protection Program Flexibility Act of 2020” was signed into law by the President effective June 5, 2020. The new law provides the following important revisions by amending the CARES Act and SBA rules concerning PPP:
Extension of Covered Period
Under the new law, the covered period for PPP loan will begin on the date the loan originated and end the earlier of:
- 24 weeks after the loan origination date, or
- December 31, 2020.
Current borrowers can elect to extend the 8-week period to 24 weeks or keep the original 8-week period.
Allocation of PPP Loan Funds
In order to qualify for forgiveness, borrowers must use at least 60 percent of the PPP loan for covered payroll costs (payroll and benefits) and may use up to 40 percent of the loan for payment of covered non-payroll costs (mortgage, rent, and utilities). The ratio for forgiveness was modified from the previous 75:25.
Extension of Deadline for Employee Retention
The deadline for eliminating decreases in full-time employee count by reinstating them to February 15 pre-pandemic levels is now extended to December 31.
The forgiven amount of a loan will be determined without regard to a reduction in full-time employees that is due to an inability to rehire employees who were employed as of February 15, 2020 and hire similarly qualified employees for unfilled positions on or before December 31.
Another reason for failing to rehire is an inability to return to the same level of business operation before February 15 due to complying with requirements issued by the Secretary of Health and Human Services, the CDC, or OSHA during the period of March 1 through December 31. These requirements are related to the upkeep of COVID-19-related standards for sanitation, social distancing or any other safety requirements.
Borrowers must prudently document their inability to rehire or hire employees, or to return to their pre-pandemic level of business operation and be ready to submit that documentation with the forgiveness applications.
Extension of Loan Maturity Date
PPP loans received on or after June 5 will have a minimum maturity of five years instead of two from the date on which the borrower applies for forgiveness. Existing PPP loans can be extended up to five years if the lender and borrower agree. The interest rate remained the same at 1%.
Extension of Loan Repayment Deferral
Payments of principal and interest will be postponed until SBA determines the amount of the loan that will be forgiven and remits it to the lender.