Paycheck Protection Program (PPP) Update – Paycheck Protection Flexibility Act

Paycheck Protection Program (PPP) Update – Paycheck Protection Flexibility Act
On Friday, June 5, 2020, President Trump signed the Paycheck Protection Flexibility Act, H.R. 7010 into law. The Senate previously approved the Act on June 3, 2020. On June 8, 2020, a joint statement, found here, was released by the SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin, which clarified the adjusted 60% allocation for payroll costs and whether a borrower could receive partial forgiveness if they fall short of this requirement. As discussed in our previous alert on May 29, 2020, the Act with new guidance from the joint statement provides the following revisions to the Paycheck Protection Program (PPP).
 
1. Forgiveness Period to Use Funds
The House bill extends the eight (8) week forgiveness period that businesses are expected to spend or incur allocated funds to twenty-four (24) weeks. The bill further extends the deadline for the PPP coverage period from June 30, 2020 to December 31, 2020. These extensions will provide businesses that are prohibited from operating by the government or are operating at a reduced capacity with greater flexibility in spending PPP funds. Borrowers that have previously received PPP loans may still elect to have the initial eight (8) week period govern forgiveness.  
 
2. Payroll Allocation Requirement
The bill lowers the payroll allocation requirement from 75% of allocated funds to 60%. This allocation amendment would entitle businesses to direct more funds to other business related costs such as interest on mortgage obligations, rent, and utilities.
 
The joint statement from SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin clarifies that if a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness.
 
3. Loan Term and Deferral of Principal, Interest, and Fees
The bill extends the minimum loan period for PPP loans from two (2) years to five (5) years and allows deferral of payment of principal, interest, and fees until the date on which the amount of forgiveness is determined. If a borrower fails to apply for forgiveness within ten (10) months after the last day of the covered period, payments of principal, interest, and fees will be deferred for at least ten (10) months. These amendments will allow businesses to better manage their repayment obligations.
 
4. Employee Availability
The bill prohibits a reduction in loan forgiveness for businesses that were unable to rehire current employees or qualified employees for unfilled positions. This amendment further prohibits a reduction in loan forgiveness in situations where businesses were unable to return to regular operations due to rules regarding maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19. The safe harbor for these provisions extend until December 31, 2020.
 
5. Deferral of Payroll Taxes
The bill eliminates paragraph (3) of Section 2302(a) of the CARES Act. This paragraph prohibits borrowers that receive forgiveness to defer payroll taxes. Therefore, the main benefit of this amendment is to allow companies eligible for forgiveness to delay payment of payroll taxes.
 
While the coverage period was extended, June 30, 2020 remains the last date on which a PPP loan application can be approved. Stay tuned for additional guidance on the PPP in the coming weeks.
 
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