The Paycheck Protection Program Flexibility Act, which President Donald Trump signed into law on June 4, 2020, makes several key changes to the Paycheck Protection Program. The business-friendly changes will help ensure that more businesses will be able to reap the benefits of the program, particularly with respect to loan forgiveness.

Paycheck Protection Program

The Paycheck Protection Program was initially established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In an effort to lessen the economic impact of the coronavirus (COVID-19) pandemic, the CARES Act amended Section 7(a) of the Small Business Act to establish a new guaranteed, unsecured loan program. As discussed in greater detail in prior articles, one of the most attractive aspects of the Paycheck Protection Program is that borrowers who meet certain criteria are eligible to have their loans forgiven.

Paycheck Protection Program Flexibility Act (PPPFA)

The Paycheck Protection Program Flexibility Act (PPPFA) overhauls the loan forgiveness requirements under the Paycheck Protection Program. Below is a brief summary of the most significant changes:

  • The covered period for loan forgiveness is increased from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement. Borrowers who have already received PPP loans retain the option to use an eight-week covered period.
  • The requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period is lowered to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.
  • The amendments provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020, and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
  • The amendments provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
  • The maturity of PPP loans that are approved by Small Business Association (SBA)  (based on the date SBA assigns a loan number) on or after June 5, 2020, is extended to five years.
  • The deferral period for borrower payments of principal, interest, and fees on PPP loans is extended to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).

What’s Next?

The SBA plans to issue rules and guidance regarding the changes, along with a modified borrower application form and a modified loan forgiveness application.  If you need any assistance in regard to the Paycheck Protect Act or any of the Federal programs now available, please contact us. We have a dedicated team of attorneys here to help. 

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Maryam Meseha, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.