PPP Flexibility Act Extends Covered Period of Loan

AAFCPAs would like to make clients aware that on June 5, 2020 the President signed into effect the Paycheck Protection Program (PPP) Flexibility Act, which would provide greater flexibility in how businesses may spend PPP loan proceeds.

The act provides new flexibility to PPP borrowers, including:

  • Expanding the original 8-week forgiveness period to 24 weeks.
  • The act changes the covered period to the earlier of:
    • (A) the date that is 24 weeks after such date of origination, or
    • (B) December 31, 2020
  • There is also an option permitting businesses to elect to stay at the 8-week period.
  • Eliminating the 25% limitation on non-payroll expenses. The guidance states that the organization should stay under 40% of non-payroll expenses. The act states that if eligible costs are not at least 60% payroll, the borrower may not be eligible for any forgiveness, however, on June 8th the Treasury department released a statement contrary to the act. The Treasury press release states that borrowers may be eligible for a portion of loan forgiveness as long as at least 60% of eligible costs are payroll related. Further guidance is expected on this issue.
  • Removing the 2-year payback period in favor of a minimum 5-year loan period. The original CARES Act stated a ten-year repayment term, which was later reduced to two years. This act states a minimum maturity of five years after application for loan forgiveness for loans with a remaining balance. Note, this may not affect loans already in effect, absent consent of the lender. If you have already entered into a loan agreement you are bound by that agreement. AAFCPAs advises clients to work with your lender to see if they are willing to extend and re-issue the terms of your loan.
  • Extends the deferral period of payback on interest and principal (originally 6 months) to the date on which the amount of forgiveness determined is remitted to the lender.
  • Allows businesses participating in the PPP loan to defer social security taxes without limitation. The purpose of PPP and the payroll tax deferment was to provide businesses with capital to weather the crisis. Delay of payment of employer payroll taxes and receiving the PPP loan should not be considered double-dipping.
  • Extends the rehiring deadline (originally June 30, 2020) to December 31, 2020; and
  • The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. During the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness under this section shall be determined without regard to a reduction in the number of full-time equivalent employees if an eligible recipient is able to document:
    • (A) They are (i) unable to rehire an individual who was an employee of the eligible recipient on February 15, 2020, AND (ii) able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; OR
    • (B) is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with 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 during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.

AAFCPAs advises clients to evaluate the changes in the program as well as your economic need. If economic need is determined, we advise clients to not delay, as we do anticipate the funds will run out.

If you have any questions, please contact your AAFCPAs Partner.