On June 3, 2020, the U.S. Senate passed H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020 (the “Act”). President Trump then signed it into law 2 days later. The Act makes significant changes and updates to the Paycheck Protection Program (the “PPP”).
Such changes include, but are not limited to:
- Increased Time to Use Funds: The Act has modified the time allowed by borrowers to use PPP loan funds from eight weeks to twenty-four weeks. Borrowers can still elect to use the eight-week period. [June 16, 2020 Updated – based on new guidance from the U.S. Treasury only borrowers who received funds prior to June 5, 2020 may elect between the two use periods. Borrowers who receive funds on or after June 5, 2020 must use the twenty-four week period].
- Lowered Payroll Funds Amount – Prior to the Act, PPP borrowers had to use at least seventy-five percent (75%) of the funds for payroll-related expenses as discussed prior (to qualify for forgiveness). The Act changed that to sixty percent (60%).
- There is a catch here. The prior law permitted partial forgiveness if a borrower used than 75% of funds for payroll costs. Now under the Act, forgiveness is eliminated entirely if less than 60% of funds are used for payroll-related expenses. [June 16, 2020 Updated – based on new guidance from the U.S. Treasury, partial forgiveness will be permitted for those who use less than 60% of loan funds for payroll-related expenses].
- Two New Ways to Get Forgiveness – The Act provides two new exceptions for borrowers looking to obtain full forgiveness of their PPP loan aimed specifically at borrowers who have not been able to restore their workforce numbers. The amount of loan forgiveness under these exceptions will be determined without a reduction in the number of full-time equivalent employees (the “FTE”) if the borrower, in good faith, can document:
- An inability to rehire individuals who were employees of the borrower on February 14, 2020 and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
- An inability to return to the same level of business operations at or before February 15, 2020 due to compliance with guidance issued by HHS, CDC, or OSHA between March 1, 2020 and December 31, 2020. This guidance must relate to maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirements because of COVID-19. Please note, this exception does not appear to take into account state restrictions and guidance that reduced business operations.
- Note: Prior guidance also allowed borrowers to exclude from their forgiveness calculations those FTE who turned down “good faith” offers to be rehired at the same hours and wages as prior to the COVID-19 pandemic.
- An Extended Repayment Period – The maturity of the PPP loans were extended from two years to five years. The interest rate remains at 1%. [Updated June 16, 2020 – Based on new guidance from the U.S. Treasury, only Borrowers who received funds on or after June 5, 2020 will receive the new maturity term of five years].
- An Extension to the 6-Month Deferral Period – The six-month deferral in payment has been extended as well. Now the deferral period is either (1) until the date on which the amount of forgiveness determined under the CARES Act is remitted to the lender or (2) for borrowers who are not asking for forgiveness, ten months.
- Changed Deadline to Restore Pre-COVID Levels of Labor and Wages – Borrowers can restore their workforce levels and wages to pre-COVID levels over a twenty-four-week period, another component for full forgiveness of the PPP loan. Prior law required borrowers to restore workforce levels and wages by June 30, 2020; it is now December 31, 2020.
- Permitted Delay in Paying Payroll Taxes – Borrowers can use a PPP loan and delay paying their payroll taxes.
Laws and regulations remain a moving target for COVID-19-related relief. As such, the laws and regulations discussed today may change soon. Please consult with a legal professional regarding the updates to the Paycheck Protection Program if you have any legal concerns.
Nichole Baer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. She received her law degree from Stetson University, College of Law and practices in several areas, including Business, Commercial Real Estate, Estate Planning, and Estate Administration.