Key Changes in PPP – The PPP Flexibility Act

Key Changes in PPP – The PPP Flexibility Act

In June 2020, the Paycheck Protection Program Flexibility Act (PPP Flexibility Act or the Act) was signed into law, in order to provide businesses with greater flexibility and more time to maximize forgiveness of loans received under the Paycheck Protection Program (PPP).

The key changes made to the Paycheck Protection Program by the Act, are as follows:

1.     Deadline for PPP Application:

Apparently, this Act extends the period during which the new PPP borrowers are entitled to apply for PPP loan from June 30, 2020 to December 31, 2020. However, the Joint Statement and Seventeenth Interim Final Rules state that the SBA will not accept PPP applications after June 30, 2020.  Just with few hours left on June 30, 2020, the Congress gave the program a new life by unanimously consenting to extend the application deadline to August 8, 2020.

2.     Forgiveness period extended:

Before this flexibility Act coming into force, a PPP borrower could apply for loan forgiveness for up to the amount expended on authorized uses, out of the PPP loan proceeds, during the 8-week period immediately following receipt of the PPP loan. The flexibility Act extends this 8-week “forgiveness period” to 24 weeks after the date of disbursement of the PPP loan to the PPP borrower, but in no event ending later than December 31, 2020.  The Act also permits the borrowers to opt either periods (8 weeks or 24 weeks) for spending the proceeds, so it is evident that ever borrower would opt for the extended period, so it isn’t sure why such an option is provided.

3.     Reduction to Minimum Required Use of Proceeds for Payroll Costs

A PPP borrower was originally mandated to apply at least 75% of the PPP loan proceeds towards “payroll costs”.  This Flexibility Act has relaxed the requirement to 60%.  The Act also states, whether intentional or not, that in order to be eligible for any forgiveness, a PPP borrower must spend at least 60% of its total PPP loan proceeds towards “payroll costs”.  The US Govt. has clarified that the SBA interprets the 60% requirement as a proportional limit on eligible non-payroll costs as a share of the borrower’s loan forgiveness amount, rather than as a threshold for receiving any loan forgiveness.  They say that if a PPP borrower uses less than 60% of the loan amount for payroll costs during the forgiveness period, the PPP borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.

The new 60/40 rule means that in order to get your loan forgiven you now need to spend only 60% of the loan on payroll, and the remaining 40% on the other eligible expenses (which remain defined as mortgage interest, rent, and utilities).

4.     Deferral of Payroll Taxes:

If a borrower received forgiveness, payroll taxes would have been immediately due. The Act removes this responsibility. Employer payroll taxes will remain deferred until December 31, 2020.

5.     Extension of the Safe Harbor Period for Loan Forgiveness:

Before enactment of the PPP Flexibility Act, a PPP borrower had until June 30, 2020 to eliminate a reduction in employment, salary and wages that would otherwise reduce the forgivable amount of its PPP loan.  The PPP Flexibility Act extends this safe harbor period to December 31, 2020.  Further, the Act provides that PPP borrowers will not experience a reduction in their forgiveness amount due to a decline in the FTE employee count if the PPP borrower, in good faith, is able to document:

(A) (i) an inability to rehire individuals who were employees of the PPP borrower on February 15, 2020; and (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or

(B) an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.

6.     Payment deferral extension:

Under the original PPP program, principal and interest payments on each PPP loan were to be deferred until the date that was 6 months after such loan’s funding date.  The PPP Flexibility Act extends the deferral period to the “date on which the amount of forgiveness determined under Section 1106 of the CARES Act is remitted by the lender”.  The Act further provides that a PPP borrower that fails to apply for forgiveness within 10 months after the last day of the 24-week forgiveness period must begin making principal and interest payments on the date that is 10 months after the ending date of the forgiveness period.

7.     PPP Loan tenure extension:

The PPP Flexibility Act extended the maturity date or tenure of such loan to at least a minimum of 5 years for PPP loans disbursed on or after the date of enactment of the Act.  For PPP loans disbursed prior to the enactment of the PPP Flexibility Act, the Act explicitly permits PPP borrowers and lenders to mutually agree and modify the existing maturity terms to conform to the new minimum of 5 years maturity for any remaining outstanding balance of a PPP loan after determination of forgiveness.

GJM & Co. can help you with your PPP Loan application or Consult you on any queries you may have with respect to its usability and forgiveness.

Schedule a Call today or write to us on info@gjmco.in

Thanks & Best regards,

Knowledge Base team

GJM & Co.

Chartered Accountants

www.gjmco.in

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