ALERT: New flexibility provided in approval of PPP bill

Today, the President signed into law the Paycheck Protection Program Flexibility Act of 2020. The legislation extends the eight-week period under which loan recipients can spend the PPP money while also making the program's lending terms more favorable and addressing other details that have challenged many businesses, particularly those in sectors like hospitality and retail.

The passage of this legislation was widely supported. Notably, the initial eight-week window recently expired for those that had received the first wave of PPP loans.

Below is an overview of the Act, along with remaining open issues. We expect the Small Business Administration (SBA) to continue issuing FAQs that address these latest changes.

Despite the changes below, it is important to note that June 30 remains the deadline for applying to receive a PPP loan.

Key points of the Paycheck Protection Program Flexibility Act of 2020

• Extends the “covered period” under which businesses can spend the loan proceeds from eight weeks to 24 weeks. The covered period was slated to end June 30 and now lasts until Dec. 31, 2020, in order to make it easier for more borrowers to reach full forgiveness.
  • Businesses who already received PPP funds can elect to still use the eight-week period, if preferred.
• Lowers the 75% requirement for payroll expenses to 60% to get maximum forgiveness.
  • However, the law currently indicates that borrowers must spend at least 60% on payroll or none of the loan will be forgiven, which is contrary to the sliding scale previously in effect (reducing the percentage amount eligible for forgiveness if less than eligible funds are used for payroll costs, but not entirely eliminating it if the threshold is not met). Congressional members have already asked the SBA to address this issue favorably in its regulations, which ideally would restore the sliding scale.
  • This also therefore expands the 25% cap to use PPP funds on nonpayroll expenses, such as rent, mortgage interest and utilities, to 40% of the total loan.
• Allows borrowers to restore workforce levels and wages to the pre-pandemic levels required for full loan forgiveness by either the end of the 24-week period or by Dec. 31, 2020.
• Provides new exceptions allowing borrowers to achieve full forgiveness even if they don’t fully restore their workforce during the extended period.
  • Allows borrowers to adjust because they were unable to rehire or find qualified new employees or to operate business operations at the same level as of Feb. 15, 2020, due to COVID-19 related restrictions issued from government agencies.
  • This is in addition to previous guidance that already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic.
• Extends the loan terms for any unforgiven portion that need to be repaid from two years to five years. The interest rate remains at 1%.
• Allows PPP borrowers to also qualify for a deferral of employer payroll taxes incurred through Dec. 31, 2020, regardless of loan forgiveness date.
• Extends 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. PPP loan interest and payment of principal and fees will be deferred until the loan is forgiven by the lender.

Key questions that remain unanswered:

• Whether the limit of cash compensation per employee would increase in proportion to the increase in the covered period, from $15,385 to $46,153.
• If so, whether the limit on forgivable compensation to owner-employee increases as well.
• How this affects self-employed taxpayers.
• Whether borrowers will be required to wait until the end of the 24-week covered period to apply for forgiveness.

For more information or assistance

We have been providing updates since the inception of the PPP and will continue to do so moving forward as the SBA provides any clarifications on the Flexibility Act. We remain available to assist you as you re-evaluate your existing PPP loan or consider applying to obtain one.

Contact your tax advisor or Shawn Sullivan using the information below.

NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.