Congress Amends the Paycheck Protection Program (“PPP”) To Provide Greater Flexibility to Borrowers

06.05.20

On June 3, 2020, Congress passed the Paycheck Protection Program Flexibility Act, which substantially amends the requirements of the PPP to give borrowers more time and flexibility to spend PPP loans and qualify for loan forgiveness. President Trump is expected to sign the Act on June 4, 2020. 

The Act extends the time in which a borrower must spend loan proceeds after loan origination to qualify for loan forgiveness (the ​“covered period”) to the earlier of 24 weeks after loan origination or December 31, 2020. While the Act allows for this extension of time, it also specifies that a borrower who received a PPP loan before the enactment of this Act may still elect to have its covered period end on the date that is 8 weeks after loan origination. In addition, the Act also amends the ⁷⁵⁄₂₅ rule and now requires borrowers to spend at least 60% of loan proceeds on payroll costs (rather than at least 75%) and allows borrowers to spend up to 40% of loan proceeds on other eligible non-payroll costs and still have the amount be forgiven.

The Act also extends the deadline by which borrowers must eliminate any reductions in the number of full-time equivalent employees (“FTEs”) or reductions in employee salaries or wages to December 31, 2020. Similarly, the Act provides that a borrower’s amount of loan forgiveness will not be proportionally reduced by a reduction in the number of FTEs if the borrower, in good faith, is able to document that on or before December 31, 2020, the borrower was unable to rehire individuals who were employees on February 15, 2020 and was also unable hire similarly qualified individuals for unfilled positions. With this, a borrower’s amount of loan forgiveness will not be proportionally reduced by a reduction in the number of FTEs if the borrower is able to document that from March 1, 2020 to December 31, 2020, it was unable to return to the same level of business activity that it was operating at before February 15, 2020 because of the borrower’s compliance with requirements or guidance issued by the Department of Health and Human Services, the CDC, or OSHA related to the maintenance of standards of sanitation, social distancing, or any other COVID-19-related worker or customer safety requirement.

The Act defers a borrower’s payment of principal, interest, and fees until the date on which loan forgiveness is determined and the amount is remitted to the lender. However, the Act clarifies that a borrower must apply for loan forgiveness within 10 months after the last day of its covered period. A borrower who fails to apply for loan forgiveness within 10 months of this date must begin making payments of principal, interest, and fees on the loan on that date. The Act also makes borrowers eligible for the deferral of payroll taxes allowed under the CARES Act.

Under the Paycheck Protection Program Flexibility Act, borrowers have until December 31, 2020 to apply for a PPP loan. Any new PPP loans disbursed after the enactment of the Paycheck Protection Program Flexibility Act will have a minimum maturity of 5 years. Borrowers with existing loans may mutually agree with their lenders to modify the maturity terms of an existing loan to 5 years.

For more information or updates, please contact your Boardman Clark attorney or the author.