News & Events

Paycheck Protection Program Flexibility Act: PPP Loan Forgiveness Made Easier

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“PPP Flexibility Act”), was signed into law, amending and reforming certain aspects of the Paycheck Protection Program (“PPP”).  The PPP Flexibility Act gives borrowers more flexibility by extending the time to use PPP loan and eases certain restrictions to make full loan forgiveness more obtainable.  A summary of the updated provisions and changes are as follows:

Loan forgiveness period has been expanded to 24 weeks.

PPP borrowers can choose to use a 24-week covered period for loan forgiveness, or maintain the original 8-week covered period, but in either event not to extend past December 31, 2020.  The covered period is still calculated from the date of loan origination.

Cap lowered to 60% for PPP loan proceeds that must be used for payroll costs.

Rather than the original 75% payroll costs requirement, borrowers may now include up to 40% of covered mortgage interest, rent, and utilities as otherwise permitted under the PPP in its loan forgiveness application.

The loan repayment term for new PPP Loans has been extended to 5 years.

New borrowers will have 5 years to repay a PPP loan (for any portion of loan that is not forgiven) rather than the original 2-year maturity for existing PPP borrowers.  However, lenders and existing borrowers may mutually agree to extend the maturity date to 5 years on existing PPP loans.  The 1% interest rate for all PPP loans regardless of origination date remain unchanged.

Rehiring and FTE restoration requirements have been relaxed.

Borrowers now have until December 31, 2020 to rehire employees and restore the number of FTEs to February 15th levels, rather than by June 30th.  Further, the PPP Flexibility Act creates 2 new exceptions to such rehiring requirements.   Despite a reduction in FTE headcount, a borrower may still qualify for loan forgiveness on payroll amounts if it can demonstrate that:

  • The borrower made a good faith attempt to rehire any employees that were laid off and could not find suitable replacements for such employees; or
  • The borrower was unable to return to the same level of “business activity” due to compliance with federal guidelines regarding COVID-19 (e.g., social distancing or other worker/customer safety requirement).

PPP loan proceeds, regardless of loan forgiveness, may now be used until December 31, 2020.

For borrowers who do not achieve full loan forgiveness, a borrower may choose to retain PPP proceeds beyond the covered period for loan forgiveness, until no later than December 31, 2020.  The original deadline was June 30, 2020.

The deferment period for payments on the non-forgivable proceeds of the loan have been extended from 6 months to the “date on which loan forgiveness is determined”.

The PPP Flexibility Act delays payments until after a determination on loan forgiveness has been made, avoiding a potential scenario where payments may be due prior to a final determination on loan forgiveness.  However, an applicant must apply for loan forgiveness within 10 months of the last day of the covered period, otherwise, payments become due immediately after 10 months have passed.

PPP borrowers may now delay payment of their 2020 payroll taxes.

This was expressly prohibited under the original CARES Act.  PPP borrowers may now delay payment of 50% of their 2020 payroll taxes to December 31, 2021, with the remainder due on or before December 31, 2022.

The PPP Flexibility Act did not extend the deadline to apply for a PPP loan, and any new application for a PPP loan must be filed on or prior to June 30th.  Further guidance on audits and forgiveness are expected, and changes will be made to the previously published forgiveness application and instructions to reflect these changes.

If you have any questions, please contact SBAloans@butlersnow.com.*

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