The Paycheck Protection Program Flexibility Act was signed into law on June 5, 2020.  The Act amends the Paycheck Protection Program (PPP) to give businesses an extended period to spend the loan proceeds in addition to other more lenient conditions to qualify for forgiveness.   See below for a quick summary of the highlighted updates.

  • PPP Borrowers now have 24 weeks to spend loan proceeds, up from 8 weeks.
    • New borrowers also have 24 weeks to spend loan proceeds, or until December 31, 2020, whichever is earlier
  • The payroll expenditure requirement is down to 60%, from 75%. If the minimum 60% requirement is not met, none of the loan is eligible for forgiveness
  • FTE Reduction penalties will now be avoided if headcount is restored by December 31, 2020 (originally June 30, 2020)
  • Two new exceptions let PPP Borrowers obtain full forgiveness even without full restoring FTE if the Borrower is in good faith and documents (at least one of) the following:
    • Not being able to rehire individuals who were employees before February 15, 2020 and not being able to hire similarly qualified employees by December 31, 2020
    • Not being able to return to the same level of business activity as before February 15, 2020, due to compliance with COVID-19 related regulatory requirements
  • The repayment period has been extended to 5 years (originally 2 years). Interest rate remains at 1%.
  • PPP Borrowers can now qualify for the deferral of employer’s share of payroll taxes available under the CARES Act
  • The loan payment start date will be deferred until the SBA determines the loan forgiveness amount and remits to the lender

As non-payroll expenses can now be as high as 40% of spending, it is important to forecast when the 60% payroll expenditure requirement will be met in order to maximize the loan repayment exemption.  With the additional time to spend loan proceeds with the new Act, we recommend cash management planning during the covered period.