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Paycheck Protection Program Flexibility Act of 2020: Key Info for PPP Borrowers

small business owner

On Friday, June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act), which now provides PPP borrowers additional time and flexibility in their loan terms. 

The new law makes significant changes to the PPP loan terms. Specifically, the PPP Flexibility Act: 

  1. Abolishes the requirement that 75% of the loan forgiveness be comprised of payroll costs and now requires borrowers to spend just 60% on such costs, allowing up to 40% to be used for payments of mortgage interest, rent and utilities. 
  2. Provides PPP borrowers the option to extend the loan forgiveness expense calculation period from the current 8 weeks to 24 weeks. 
  3. Extends from June 30, 2020, to December 31, 2020, the rehiring safe harbor period within which employees can be rehired to avoid reduction in the loan forgiveness amount. 
  4. Creates a new exemption for proportional loan forgiveness reduction if the borrower can show in good faith an inability to rehire individuals who were employees as of February 15, 2020, or hire similarly qualified employees for unfilled positions on or before December 31, 2020, or an inability to return to business activity levels at or before February 15, 2020, due to compliance with COVID-related requirements or guidelines. 
  5. Extends the maturity of PPP loans from the current 2 years to a minimum of 5 years (but still not more than 10 years) for those borrowers that may still be required to repay a portion or all of their PPP loans. 
  6. Defers loan payments for those borrowers that may still be required to repay a portion or all of their PPP loans until the loan forgiveness amount is determined or 10 months from the last day of the covered period if the borrower does not apply for loan forgiveness. 
  7. Allows PPP borrowers to now defer the payment of 50% of 2020 payroll taxes until December 31, 2021, and 50% until December 31, 2022. 
  8. Extends the deadline for funding a PPP loan from June 30, 2020, to December 31, 2020. 

 

We expect the U.S. Small Business Administration to issue more guidance on this topic in the future. The complete text of the PPP Flexibility Act is here.