Amendments to the Paycheck Protection Program (PPP) were signed into law on Friday, June 5, 2020. Since being established as part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) in March 2020, the PPP has been the subject of additional stimulus bills, legal guidance and interim final rules. In the latest development, Congress passed the Paycheck Protection Program Flexibility Act of 2020, providing borrowers more flexibility in spending PPP funds without compromising their forgiveness eligibility.
The bill made the following amendments to the PPP to provide relief to borrowers:
- Loan repayment terms -The amendments extend the minimum loan term for unforgiven PPP loans from two years to five years.
- Payroll costs vs. non-payroll costs – For forgiveness eligibility, the bill reduces the portion of PPP funds that must be spent on payroll costs from 75% to 60% and raises the non-payroll cost limitation from 25% to 40%.
- Covered period extension – The amendments extend the covered period during which borrowers must spend the PPP funds to be eligible for forgiveness from eight weeks to 24 weeks from the date of origination of the loan.
- Payroll tax deferment – The amendments permit borrowers to defer payroll taxes without being penalized while remaining eligible for loan forgiveness.
- Extension of rehiring safe harbor – The amendments extend the rehiring safe harbor by six months to provide borrowers with additional time to restore payroll levels or rehire employees without facing a reduction in the amount of forgiveness for which they are eligible. The original date was June 30, 2020, and the new date is December 31, 2020.
In addition to the provisions above, the amendments provide loan forgiveness eligibility exemptions for borrowers that are not able to rehire an employee or a replacement. There are also exemptions for loan forgiveness eligibility for borrowers that unable to return to the same level of business due to complying with COVID-19-related orders or circumstances.
The Treasury Department has also released two new forgiveness applications: a Revised Loan Forgiveness Application, implementing the PPP Flexibility Act of 2020, and a more simplified EZ Application, requiring fewer calculations and less documentation than previously required.
Borrowers should review the amendments carefully and speak to their lender or tax professional should they have any questions.