Paycheck Protection Program Flexibility Act
The Paycheck Protection Program Flexibility Act of 2020 (PPPFA) does just that, provide flexibility to small businesses who borrowed through the SBA PPP loan program. The flexibility comes primarily in the form of more time.
More time in the "Covered Period":
PPPFA stretches the "covered period" from 8 weeks to 24 weeks, almost half a year. This is the period of time that a borrower must pay or incur qualified expenses in order to have their loan forgiven. Qualified expenses include payroll, benefits, mortgage interest, rent, utilities, and interest on other debt obligations. Payroll is still capped at an annual amount of $100,000 per person, but that is now spread over 24 weeks, increasing the maximum per-person amount from $15,385 to $46,154.
More time to repay the loan:
Any amount received under the PPP that is not spent on qualified expenses must be repaid. The original repayment period was 2 years, but the maturity has now been extended to 5 years. This is automatic for loans made after the date of enactment, but PPPFA allows that lenders and borrowers may mutually agree to modify existing PPP loans for the extended maturity date.
More time before repayment begins:
Previously, repayment of any unforgiven PPP loan was to begin 6 months following the date the loan proceeds were received, now the repayment does not need to start until the date the SBA remits the forgiven amount to the lender. If a borrower does not apply for forgiveness of the loan, the repayments must start within 10 months after the last day of the 24-week "covered period."
More time for hiring full-time equivalent employees (FTEs):
Under the original PPP, the amount of loan forgiven would be reduced if an employer did not restore their staffing levels. Employers were given a safe-harbor date of June 30, 2020 for their FTEs to be equal to or greater than the FTEs they had on February 15, 2020. The restoration date has been moved to December 31, 2020. PPPFA also expands the available exemptions when an employer is unable to hire staff, but the employer must document its inability to rehire, to hire similarly qualified individuals, or to return to the same level of business activity.
More flexibility in spending:
The original SBA rules allowed that only up to 25% of the loan forgiveness may be for non-payroll costs; PPPFA changed this to retroactively allow that up to 40% of the loan proceeds can be used for expenses such as rent, utilities and mortgage obligations.
We expect to have clarification of many of the points contained in the PPPFA. We will share them with you when they become available.
The SBA still has funds available for PPP loans to small businesses. The deadline to apply is June 30th.
A word of caution: this is a very brief summary and does not include all of the details that may impact your individual situation. Please contact us if you would like more information.
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