The Payroll Protection Program Flexibility Act (PPPFA) was signed by President Trump on Friday, June 5^th. The Act provides needed changes to the original requirements for forgiveness of PPP loans due to extended business closures, limited and restricted re-openings, and employees not being able to return to work. The Act provides more flexibility in spending loan funds and includes other important changes to due dates and borrower requirements.

 

The Payroll Protection Program provided strict requirements for use of PPP funds. The funds had to be spent on payroll costs and certain qualifying expenses in order for the loan to be forgiven.  The amount of the loan proceeds required to be spent on payroll costs has been reduced from 75% to 60%. As a result, loan proceeds of 40% can be spent on other qualifying expenses.

 

Many businesses were struggling to spend the loan funds in the required 8 week period from the date of receiving the loan due to business closures and the need to retain the funds for reopening expenses. The time period for spending the loan funds for forgiveness has been extended and is now the earlier of 24 weeks or December 31, 2020.

 

The original bill required loan forgiveness to be reduced if the number of full-time equivalent employees (FTEs) or total salaries were reduced unless employees were rehired by June 30, 2020. The PPPFA has extended the date to rehire workers until December 31, 2020. The Act also adds additional exceptions for businesses that have not been able to restore the number of employees rehired to its February 15, 2020 number of employees. A reduction in the number of FTEs will not impact the loan forgiveness amount if the business is able to document the inability to rehire employees, or hire similarly qualified employees, or is not able to return to the same level of business activity due to compliance requirements.

 

The loan repayment term is now 5 years (from 2) for the amount of the loan that is not forgiven. Loan repayment is now deferred until the loan forgiveness is approved or rejected by the SBA.

 

The PPPFA now allows businesses to defer the employer’s share of social security payroll tax payments in accordance with the CARES Act which were not previously allowed.