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June 5, 2020

Paycheck Protection Program Flexibility Act Will Make Loan Forgiveness Easier

On Friday, June 5, the President signed into law the Paycheck Protection Program Flexibility Act of 2020. This Act updates restrictions to make it easier for businesses to have their PPP loans forgiven. Below is a summary of the legislation.

Changes to PPP Loan Forgiveness

  • Covered period extended to 24 weeks rather than 8 weeks.
  • Rehire exemption date extended to December 31, 2020 from June 30, 2020.
  • June 30 remains the deadline to apply for a PPP loan.
  • If FTEs and wages are not restored by December 31st, the loan forgiveness may not be reduced if the borrower is:
    • Unable to rehire an individual who was an employee on or before 2/15/20; AND
    • Able to demonstrate an inability to hire similarly qualified employees on or before 12/31/20; OR
    • Able to demonstrate inability to return to same level of business activity such business was operating at prior to 2/15/20 due to compliance requirements or guidance issued by certain federal organizations.
  • Rather than using 75% of PPP funds on payroll costs, the borrower now should use at least 60% of PPP funds for payroll costs and up to 40% on non-payroll costs. While the bill appears to be written that 60% of funds must be used on payroll or no amount of the PPP loan is forgivable, there is strong conversation and inclination that the 60/40 rule will be interpreted similar to the previous 75/25 rule.
  • Businesses are required to apply for forgiveness within 10 months of the end of the covered period.
  • If a covered loan was received prior to this enactment, the borrower may elect to keep their original 8-week covered period.
  • Taxpayers that have a PPP loan forgiven are now also be eligible to delay payment of employer payroll taxes – they were previously prevented from doing so if they had a PPP loan forgiven.
  • New PPP loans now have a 5 year loan term rather than 2 year loan term. For existing PPP loans, you may be able to modify your maturity at the discretion of your lender. Although the term could increase, the interest rate remains at 1%.

How the New PPP Loan Forgiveness Changes Benefit Businesses

These changes give people a chance to step back and slow down, even for those at or near the end of their 8-week period.  They are meant to make it easier for businesses to have their PPP loan forgiven, and will be a relief for nearly all businesses with PPP loan proceeds. These changes now allow business owners the time to make strategic business decisions versus knee-jerk reactions.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential business impacts and benefits. Visit our COVID-19 Resource Center for more news, tools and insights you need to know in these uncertain times.

Watch our CARES Act Team break down the highlights of the Act:

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