Update on PPP Loans
The Paycheck Protection Program Flexibility Act was signed into law on June 5, 2020. The act contains the following provisions that will change how PPP borrowers can maximize forgiveness of their loans.
1. Repayment Period Extension
For new PPP loans, the repayment period has been extended from two years to five years from the date on which the PPP loan funded. Existing PPP borrows are also eligible for this extension, but must work with their lenders to request the necessary modification to their existing loan documents. As long as the rules are followed, the loans will still bear interest at only 1% per year.
2. Covered Period Extension
The 8-week covered period has been extended to 24 weeks. If current PPP borrowers choose, they can elect to keep the original eight-week period. This may be desirable to businesses who have spent all of the proceeds they received and are already eligible for full forgiveness. New PPP borrowers will have a 24-week covered period, but the covered period cannot extend beyond Dec. 31, 2020.
3. Greater Flexibility in Allowed Uses of Funds
The amount that borrowers must spend on payroll costs has been decreased from 75% to 60%. The remaining 40% of the loan may be spent on mortgage interest payments, rent payments, and covered utility payments.
4. Payroll Tax Deferral
The bill allows businesses receiving loan forgiveness under the PPP program to defer paying the 6.2% payroll tax for a period of two years. This was originally prohibited under the CARES Act.
5. Exceptions for Employers Who are Unable to Fully Restore Their Workforce
There are also two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they do not fully restore their workforce. Previous guidance 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. The new bill allows borrowers to determine the amount of loan forgiveness allowed without regard to these employees if they could not find similarly qualified employees for unfilled positions on or before December 31, 2020. Borrowers can also achieve full PPP loan forgiveness, if they were unable to return to the same level of staffing due to federally required sanitation, social distancing, or similar requirements.
