Dear Client – last night the Senate passed the House bill that creates more flexibility for borrowers using PPP funds. If signed into law by Trump, the Paycheck Protection Program Flexibility Act would:
- 1. Borrowers can extend the 8 week period to 24 weeks: this makes it easier for borrowers to get full or close to full forgiveness on their loans. Borrowers also have the ability to make an election to have the original 8 week period apply in lieu of the 24 week period. This would make senses for borrowers that have already spent the funds on sufficient expenses that provide for full forgiveness, so they can confirm their loan forgiveness.
- 2. Penalty and calculations for reduction in workforce rolled back from June 30th to December 31st. The provision which reduces forgiveness in proportion to the reduction of the employer workforce during the 8 week period if the same number of employees are not rehired by June 30th is now changed. The new bill would modify the provision by using the 24 week period instead of the current 8 week period, while extending the June 30th amnesty rehire date to December 31st. Example – if a business had 100 employees before the virus and reduces its workforce to 50 employees during the 24 week period, it will receive complete forgiveness if it has 100 employees on December 31, 2020.
- 3. Remove the limits on loan forgiveness for small businesses that were unable to rehire employees, hire new employees or return to the same level of business activity as before the virus. The bill provides an exemption from a reduction in loan forgiveness for employers that have reduced their workforce if, during the period beginning Feb 15,2020 and ending Dec 31, 2020, the employer, in good faith, is able to document one of the following:
- Employer could not find qualified employees to hire
- Employer could not restore business to comparable level of activity because of social distancing or other federal health guidance
- 4. The 75% test now become a 60% cliff. The bill would change the requirement that 75% of amounts forgiven have to be spent on payroll expenses. The borrower will now be required to use at least 60% of the loan amount for payroll costs, and may use up to 40% for permitted rent, utilities, and interest on secured debt, as defined by law. As the bill is written, there would be no partial forgiveness if the 60% test is not met.
- 5. Two year deferral of employer payroll taxes –borrowers would now be eligible for the deferral of payment of the employer's share of social security payroll taxes (6.2%), regardless of whether the borrower received loan forgiveness. This allows borrowers to now defer payment of the employer's share of social security until 2021 (50% payment due) and 2022 (remaining 50% due).
- 6. Repayment period extended to 5 years with 1% interest during the 5 year term.
- 7. Extend the period for when a business can apply for loan forgiveness, from within six months to within 10 months of the last day of the covered period, before it must start making interest and principal payments. Under the new bill, PPP loan interest and payment of principal and fees will be deferred until the loan is forgiven by the lender.
We will keep you updated on these and other developments.