Paycheck Protection Program Flexibility Act of 2020

UPDATE: Treasury Secretary Steven T. Mnuchin and SBA Administrator Jovita Carranza issued a joint press release stating the SBA, in consultation with the Department of Treasury, will be issuing rules and guidance as well as an updated forgiveness application form in connection with the Paycheck Protection Program Flexibility Act (PPP Flexibility Act). One noteworthy comment in the press release relates to a possible change in the loan forgiveness calculation. The PPP Flexibility Act stated that a borrower was required to use 60 percent of the PPP Funds in order to be eligible for loan forgiveness in its entirety. The press release states “[i]f a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.” While this comment has not been incorporated into any final ruling, if this change does become binding, it will be beneficial to borrowers who were unable to meet the 60 percent threshold for payroll costs due to, amongst other reasons, the current economic climate. We will continue to monitor for guidance formally implementing the change to the forgiveness rules and will update as new information becomes available.

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Following the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020, which set out the frame work for small businesses to receive relief funds known as the Paycheck Protection Program (PPP), the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act) was signed into law June 5, 2020, modifying the original terms of the CARES Act. This update summarizes the PPP Flexibility Act and the changes it makes to the CARES Act.

1. The maturity date for PPP loans made after the date of the enactment of the PPP Flexibility Act has been amended from two years to a minimum of five years. This means that the maturity extension is not retroactive if a borrower received a PPP loan prior to the date of the PPP Flexibility Act. A borrower and lender may mutually agree to extend the maturity date and this would require an amendment to the existing PPP loan document.
2. The covered period has been extended to December 31, 2020, from the previous end date of June 30, 2020.
3. The covered period for PPP loan forgiveness has been revised to the period beginning on the date the loan was funded and ending on the earlier of 24 weeks after the loan was funded or December 31, 2020. However, if a borrower received a PPP loan prior to the enactment of the PPP Flexibility Act, they may elect to have the covered period remain at an 8-week period as previously provided for in the CARES Act. This will allow them to apply for loan forgiveness earlier rather than waiting for the expiration of the revised 24-week period.
4. The June 30, 2020, deadline to restore employee levels has been extended to December 31, 2020.
5. Between February 15, 2020, and December 31, 2020, the amount of loan forgiveness will not be reduced by a proportionate reduction in the number of full-time equivalent employees if the borrower is able to document:
   1. An inability to rehire employees who were employed prior to February 15, 2020, and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
   2. An inability to return to the same level of business activity that existed prior to February 15, 2020, due to compliance 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 between March 1, 2020 and December 31, 2020.
   3. The percentage of funds required to be spent on eligible payroll costs in order to be eligible for forgiveness was reduced from 75 percent to 60 percent. However, if a borrower is unable to spend at least 60 percent of the funds on eligible payroll costs, it appears that the entire balance of the loan will be ineligible for forgiveness.
   4. Deferral on payments has been revised from six months to a date tied to the date the borrower provides their forgiveness application and supporting materials to the lender. If the borrower fails to apply for forgiveness within 10 months after the end of the covered period (currently 24 weeks but the borrower may elect 8 weeks) then payments will begin 10 months after the end of the covered period.
   5. The PPP Flexibility Act now allows borrowers who have loans forgiven to defer payroll taxes through the end of 2020 (half to be paid in 2021 and half in 2022).

As we saw with the CARES Act, we anticipate receiving additional guidance from the SBA and the Treasury to address questions and concerns that will arise under the PPP Flexibility Act. There may also be an amended forgiveness application issued by the SBA given the changes set forth above. As we receive these developments we will continue to update our previous updates with the latest information.