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Government Enacts “Paycheck Protection Program Flexibility Act of 2020” to Amend Paycheck Protection Program Loans
On June 5, 2020, the President signed into law the “Paycheck Protection Program Flexibility Act of 2020” (“PPP Act”) to amend the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) Loan program enacted under the CARES Act. The PPP Act modifies many of the PPP Loan program terms and loan forgiveness conditions to the benefit of PPP Loan borrowers. The PPP Act does the following:
- PPP Loan Maturity Extended to Five Years – PPP Loans were originally set to mature two years from their origination date. The PPP Act extends this minimum maturation period to five years.
- Covered Period to Spend PPP Loan Proceeds Extended – PPP Loan borrowers originally were eligible for loan forgiveness if they used the loan proceeds for payroll and other eligible costs during the eight-week covered period following the loan origination date. The PPP Act extends this covered period to use PPP Loan proceeds to the earlier of: (i) 24 weeks from the loan origination date, or (ii) December 31, 2020. Borrowers may ignore this change and keep their covered period of eight weeks if they received their loan before June 5, 2020.
- Rehiring Full-Time Equivalent Employees Period Extended – PPP Loan borrowers must rehire, or offer to rehire, full-time equivalent (“FTE”) employees that were laid off by no later than June 30, 2020, to avoid a reduction in the PPP Loan forgiveness amount. The PPP Act extends this rehire requirement through December 31, 2020. The PPP Act also clarifies that SBA will not reduce a PPP Loan forgiveness amount if a borrower can document, in good faith: (i) an inability to hire individuals employed as of February 15, 2020, and an inability to hire similarly qualified employees for unfilled positions before December 31, 2020; or (ii) an inability to return to the same level of business as of February 15, 2020, due to compliance with COVID-19 sanitation, social distancing, and safety standards. Borrowers who are not able to rehire FTEs due to compliance with COVID-19 safety standards will not have their PPP loan forgiveness amount reduced.
- Reduction of Obligation to Spend 75% of PPP Loan on Payroll Costs – SBA originally agreed to forgive up to 75% of borrowers’ total eligible payroll cost, and up to 25% of their authorized nonpayroll costs. The PPP Act modifies these percentages to only require borrowers to spend up to 60% spent on payroll costs. Borrowers may now have the loan forgiven for up 40% of their expenses on nonpayroll costs such as mortgage interest, rent payments, and utility payments.
- Deferral Period Extended – SBA originally permitted borrowers to defer payment of principal, interest, and fees for up to six months after the loan origination date. Borrowers may now defer these payments for up to one year.
The PPP Act applies to all PPP Loans issued at any time. Borrowers now have more time to spend the PPP Loan amounts, and to rehire, or certify that they cannot rehire, FTEs laid off due to COVID-19.