Paycheck Protection Program Flexibility Act Brings Changes to PPP Loan Program
On June 3, 2020, the U.S. Senate, by unanimous vote, passed the House version of the Paycheck Protection Flexibility Act (“the Act”), which modifies various loan forgiveness provisions in the Paycheck Protection Program (“PPP”), which was enacted as part of the CARES Act. The President is expected to sign the bill into law.
Significant revisions to the PPP resulting from the Act are as follows:
- The covered period during which PPP loans must be used has been extended to 24 weeks from the date of the PPP loan disbursement, up from the 8-week covered period provided for in the original legislation. Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond December 31, 2020.
- The threshold for how much is required to be spent on payroll expenses in order to receive forgiveness has been reduced to 60%. However, the Act stipulates that if less than 60% is spent on payroll, none of the loan can be forgiven. Previously, a borrower was required to reduce the amount eligible for forgiveness if less than 75% of eligible funds were used for payroll costs, but forgiveness wasn’t eliminated if the 75% threshold wasn’t met. Chip Roy (Texas), who co-sponsored the bill in the House, said in a House speech that the bill intended the sliding scale to remain in effect at 60%. Senators Marco Rubio and Susan Collins indicated that technical tweaks could be made to the bill to restore the sliding scale.
- PPP loan borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by December 31, a change from the previous deadline of June 30.
- The Act provides two new safe-harbor exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Under the new guidance, full time equivalent (FTE) reductions would not reduce forgiveness if:
- the borrower can document in good faith the inability to rehire individuals who were employees on February 15, 2020, or the inability to hire similarly qualified employees for unfilled positions by December 31, 2020; or
- the borrower can document in good faith an inability to return to the same level of business activity as such business was operating before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration.
- PPP loan payment deferrals have been changed from six months to the time that the forgiveness amount is remitted to the lender by the SBA. For PPP loan borrowers who don’t ask for forgiveness the payment deferral period is 10 months.
- PPP loan borrowers can now defer the payment of certain FICA payroll taxes for wages paid from March 27, 2020, through December 31, 2020, paying half of the deferred balance in 2021 and the other half in 2022.
- New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to five years if the lender and borrower agree. The interest rate remains at 1%.
The SBA and Treasury have not yet released guidance pertaining to the PPP revisions included in the Paycheck Protection Flexibility Act. We anticipate further guidance will be provided for borrowers and lenders, as well as modifications to the SBA PPP Loan Forgiveness Application released May 15, 2020.
Ericksen Krentel continues to monitor the ever-changing guidance and requirements for the PPP loan application and debt forgiveness process to ensure you receive the maximum benefits. Our team is ready to help create a customized approach for your organization to effectively, and correctly, use those funds to guarantee maximum forgiveness.
If you received PPP funds and need assistance in allocation and forgiveness documentation or calculation, please contact us by clicking here.
As questions or concerns arise, we ask that you contact us so we can address them as quickly as possible to ensure we continue to meet your needs. As a reminder, you can always monitor our COVID-19 Updates webpage by clicking here for the latest or monitoring our accounts on LinkedIn, Twitter or Facebook.
About Ericksen Krentel
Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.
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