By Jack F. Petroskey

The president has signed the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”), which makes significant changes to the Payroll Protection Program (“PPP”). The changes contained within the PPPFA should provide more flexibility to businesses to fully utilize their PPP funds which will increase the likelihood of the PPP loan being forgiven.

Here are the changes this law makes:

1. The Covered Period to obtain forgiveness has now been extended from 8 weeks to 24 weeks. This means that Borrowers have significantly more time and flexibility in which to spend the PPP money. This allows businesses that plan properly to get maximum forgiveness.

2. The Covered Period to obtain forgiveness can now be extended as far as December 31, 2020, extending from June 30, 2020.

3. The deferment period for repayment of PPP loan proceeds is now 10 months after the end of the Covered Period to obtain forgiveness, extended from 6 months.

4. The so called 75/25 rule – the rule that required businesses to have at least 75% of their forgiveness come from payroll costs, and a maximum of 25% for all other forgivable costs (rent, utilities, interest on mortgage, interest on existing debt) – has now been changed to the 60/40 rule. At least 60% of forgiveness must now come from Payroll, with a maximum of 40% forgiveness coming from the other approved expenses. This creates significantly more flexibility for Borrowers with higher rent and utilities costs.

5. The PPPFA creates a “cliff effect” by stating that unless a Borrower spends at least 60% of the loan proceeds on payroll costs, then none of the loan will be forgiven.

6. Loan repayment can now take place over a period of 5 years, extended from 2 years.

7. Borrowers now have until December 31, 2020 to eliminate any reduction in Full Time Equivalent employees (“FTE”) in their workforce. This is another change that will allow well organized businesses to achieve maximum forgiveness.

8. Borrowers that make a good faith attempt, but fail, to hire to fill vacancies left by former employees that refused to come back to work will now not have that count against a Borrower’s FTE formula. There is language that suggests a Borrower whose business fails to return to the level of business as before February 15, 2020 due to requirements established by certain government agencies related to social distancing, maintenance standards for sanitation or other worker safety requirements, will also not have their forgiveness reduced due to a reduction in FTE. It’s not clear how this provision of the statute will be executed, and further guidance is expected.

9. Allows Borrowers that have their PPP loan forgiven to continue deferring the payment of eligible payroll taxes through the rest of 2020. This is a change, as under 2302 of the CARES Act, once the PPP loan was forgiven, a business was not eligible to continue deferring the payment of eligible payroll taxes.

It is important to note that this law does not change Borrowers inability to deduct the forgiveness they received under PPP. Pursuant to Notice 2020-32, the IRS has stated that expenses paid with forgiven PPP funds will not be deductible for tax purposes. This law does not change that.

These are significant changes, and PPP Borrowers should be made aware so they can plan accordingly. Please feel free to reach out to Kemp Klein for assistance in receiving PPP loan forgiveness.

We will keep you posted with any clarifications or new guidance that comes out regarding PPP.


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