On Friday, June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA) of 2020 that was passed by the House on May 27th and approved by the Senate on June 3rd. The PPPFA addresses concerns that many small businesses, particularly restaurants and retailers, had regarding certain requirements for PPP loan forgiveness. The PPPFA modifies the following PPP provisions:
- Payroll Allocation. In order to receive forgiveness, the PPP mandated that a minimum of 75% of the loan had to be allocated to payroll. The remaining 25% could be used for other designated expenses, including mortgage interest, rent, and utilities. The PPPFA cut the payroll allocation to 60%, allowing businesses 40% to spend on those other expenses; however, the list of eligible non-payroll expenses for forgiveness was not changed.
- Covered Period. Another condition for forgiveness required businesses to spend loan funds during an eight-week period, beginning the date the funds were distributed. Under the PPPFA, the timeframe has been extended to twenty-four weeks, allowing borrowers more time to allocate funds through the end of the year, and increasing the likelihood of forgiveness. This is a major relief for many small businesses that, under state and government mandates, have not reopened or resumed normal operations. In addition, borrowers are not required to wait until the end of the twenty-four week period before applying for forgiveness.
- Full-Time Employees. The PPP was created to encourage small businesses to retain the same number of employees on the payroll as it had prior to February 15, 2020. Borrowers were given until June 30, 2020 to rehire terminated or furloughed full-time employees (or equivalents), or prove in writing a “good faith” effort to rehire, in order to qualify for forgiveness. The modifications in the PPPFA give small businesses more time to rehire and reinstate cut salaries and wages to avoid a reduction in the forgivable amount of the PPP loan. The changes include:
- extending the rehire date to December 31, 2020 and
- allowing businesses to receive forgiveness if, in good faith, the borrower is able to provide documentation that it was:
- unable to rehire individuals of the eligible recipient that was employed on or before February 15, 2020;
- unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
- unable to return to the same level of business activity, due to compliance with state and federal COVID-19 requirements or guidance, as it had been operating at prior to February 15, 2020.
- Repayment Terms. The PPPFA also makes numerous changes to the PPP repayment terms on loans or loan amounts that are not forgiven, including:
- extending loan repayment term from two to five years, at 1% interest;
- deferring repayment to six months after the SBA determines forgiveness and distributes compensation amounts;
- providing loan recipients who do not apply for forgiveness 10 months from the programs’ expiration to begin making payments; and
- eliminating the provision that makes PPP loan recipients ineligible to defer payroll tax payments.
The PPPFA offers borrowers more flexibility when allocating loan funds and a higher chance of meeting forgiveness requirements; however, there remain many aspects of the PPP that have not been modified. Price Kong is here to help you navigate the maze of PPP and PPPFA regulations for forgiveness, and assist with the application process. We are also available to consult on other areas related to the CARES ACT, as well as tax and audit issues you may be facing. You can also access our COVID-19 Resource Center, which includes as-it-happens updates and links to important information on the SBA, Department of the Treasury, Department of Human and Health Services, and the Internal Revenue Service.
We look forward to helping you with any issues you may be facing. Please contact us if you have questions or concerns at 602.776.6300.