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How Does the Paycheck Protection Program Flexibility Act (PPPFA) Impact My Paycheck Protection Program (PPP) Loan?

Recently, the Paycheck Protection Program Flexibility Act (PPPFA), was signed into law.  This gives borrowers additional time and flexibility to use Paycheck Protection Program (PPP) loan proceeds. The PPPFA is intended to serve as an additional boost for small businesses trying to muscle through this pandemic-induced economic crisis.

Continue reading to see how your business might benefit from some of the most significant changes from the PPPFA.

  • Extended Loan Maturity Date

Under the CARES Act and Small Business Administration (SBA) regulations, the term of any unforgiven portion of a PPP loan is two years from origination.  The PPPFA extends the maturity of PPP loans from two years to five years.  It is important to note that the extended repayment period only applies to PPP loans made after June 5, 2020.  Lenders and borrowers can renegotiate the maturity of any previously existing PPP loan.

  • Deadline Extension to Use Loan Proceeds

Under the PPPFA, current PPP borrowers can now choose to extend the eight-week period to 24 weeks or choose to keep the original eight-week period.  New PPP borrowers will automatically have a 24-week period, but the use period cannot extend beyond December 31, 2020.

  • Threshold of Proceeds Lowered

Originally, PPP borrowers were required to use 75% of loan proceeds for payroll costs.  Those who failed to satisfy this requirement would have their loan forgiveness amount reduced.  Under the PPPFA, the threshold has been reduced from 75% to 60%.

This results in the ability of borrowers to use up to 40% of PPP loan proceeds for nonpayroll eligible costs.  It is important to note that borrowers must spend at least 60% on payroll, or they will risk losing forgiveness for the entire loan.

  • Rehiring Deadline Extended

If the borrower cuts back on the number of “full-time equivalent” (FTE) employees during the eight-week or 24-week coverage period, then the amount of a PPP loan forgiveness amount is generally reduced.  However, if the number of workers and wage levels is restored by June 30, 2020, this rule does not apply for a significant decrease in employment and/or wage levels between February 15 and April 16, 2020.  The PPPFA extends this deadline from June 30 to December 31, 2020.

  • Inability to Rehire or Return to Full Operation

The PPPFA also adds a new exception to the loan forgiveness reduction rules.  Now, the amount of a PPP loan that is forgiven will not be reduced if the borrower fails to restore FTE levels by December 31, 2020, if they can document the following:

  1. Inability to rehire people who were employees on February 15, 2020 and hire similarly qualified employees for unfilled positions by December 31, 2020.
  2. Inability to return to its pre-February 15, 2020, level of business activity because it is complying with COVID-19 regulations or guidance issued by the Department of Health and Human Services, Centers for Disease Control and Prevention, or Occupational Safety and Health Administration between March 1 and December 1, 2020.

These exemptions are important for businesses that are unable to return to full operation because of restrictions on customer capacity or similar reopening restrictions.

  • Loan Deferral Period Extended

The CARES Act allows borrowers to defer payment of non-forgiven PPP loan amounts for six months from disbursement of the loan.  The PPPFA extends this deferral period until the date that the amount of loan forgiveness is determined.  The business must begin making payments 10 months after the last day of the eight- or 24-week loan use period if the borrower does not apply for loan forgiveness.

  • Payroll Tax Deferral

The CARES Act permits businesses to delay payment of employer payroll taxes through December 31, 2020, with payments due over the following two years.  However, the CARES Act did not permit PPP borrowers to take advantage of this benefit.  The PPPFA removes this restriction, so that any PPP borrower may now delay payment of its payroll taxes like other businesses.

For more information, always consult a member of our for-profit or not-for-profit team here.

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