What Employers Should Know About the Paycheck Protection Program Flexibility Act

On June 19, 2020, the Small Business Administration ("SBA") published an Interim Final Rule implementing the terms of the Paycheck Protection Program Flexibility Act ("PPPFA").

The PPPFA, which was signed into law on June 5, 2020, enacts changes to the Paycheck Protection Program ("PPP"), giving businesses greater flexibility in how they use their loan funds.

The PPPFA makes the following changes to the PPP:

  • It extends the covered period for new loans from 8 weeks to 24 weeks, not to extend beyond December 31, 2020. Existing borrowers may elect to keep the original 8-week covered period.
  • It extends the period for employers to rehire employees to December 31, 2020, while providing a safe harbor for employers unable to rehire individuals or find similarly qualified individuals for employment.
  • It creates another safe harbor for businesses whose reduction in employees is due to the inability to return to its pre-COVID-19 level of business due to rules and regulations on sanitation, social distancing, or other worker safety requirements related to COVID-19.
  • It reduces the required percentage of loan funds spent on payroll expenses from 75% to 60%, thereby raising the cap on non-payroll allowable expenses (such as rent, utilities, and mortgage interest) from 25% to 40%.
  • It extends the maturity date of loans made after June 5, 2020 from 2 years to 5 years. The borrower and lender may mutually agree to extend the maturity date of existing loans.
  • It extends the deferral period on payment of the loan until the lender receives the forgiveness amount from the SBA. If the borrower does not apply for loan forgiveness, payment may be deferred for 10 months.
  • It allows borrowers who apply for loan forgiveness to defer certain payroll taxes.

The Interim Final Rule clarifies three points regarding the PPPFA:

  • Under the new 60% loan forgiveness requirement, a borrower is still eligible for partial forgiveness if they do not spend at least 60% of the loan funds on payroll costs.
  • Self-employed individuals with no employees may qualify for PPP loan forgiveness under new owner-compensation rules.
  • The last day that PPP loan applications can be approved is June 30, 2020.

To learn more about the PPP and the PPPFA, please contact CCBLaw.