On Friday, June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act, or PPPFA, to address issues identified by small business owners regarding the previously-enacted Paycheck Protection Program, or PPP, which provided potentially-forgivable loans to eligible small businesses in the face of COVID-19.
One of the most significant changes in the PPPFA is the percentage of the loan funds that must be used for payroll in order for the loan to remain fully forgivable. In the original PPP, Congress required loan recipients to spend 75% of the loan on payroll, allowing only 25% of loan funds to be used for non-payroll expenses such as rent. (The funds could actually be used for a lower percentage of payroll, but those funds wouldn’t have been forgiven under the PPP.) The PPPFA reduced the percentage of forgivable loan funds that need to be expended on payroll from 75% to 60%, thus increasing the amount that can be spent on non-payroll expenses from 25% to 40%. This measure provides small business owners with greater flexibility to spend PPP funds and still be eligible for loan forgiveness.
The original PPP required loan recipients to spend all loan funds within an eight-week period, beginning when the small business owner received the funds. Advocates requested that this time period be extended to allow business owners more time to spend loan funds due to many businesses being forced to remain closed. The PPPFA extends this time period to 24 weeks, though businesses do not have to wait until the end of the 24-week period to apply for loan forgiveness.
Additionally, the PPP required that small businesses rehire all workers by June 30, 2020, in order for those employee’s salaries to count towards loan forgiveness. Many businesses are only now slowly reopening and weren’t likely to meet this deadline, so the PPPFA modifies this provision to allow businesses until December 31, 2020 to rehire workers and still qualify for forgiveness.
The PPPFA also addressed strict rehiring requirements initially included in the PPP bill, which required employers to rehire the same number of full-time employees (“FTE”s) by June 30, 2020. Under the PPP, employers could be excepted from the rule if they made a written offer to an employee and it was rejected. Now, the rehire date is extended to December 31, 2020, and new exceptions have been added for business owners who aren’t able to rehire all employees.
The new exceptions include:
- if the employer is unable to rehire a former employee who was an employee on or before February 15, 2020;
- if the employer is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
- if the employer is able to demonstrate an inability to return to the same level of business activity as that business was operating prior to February 15, 2020.
Lastly, the PPPFA extended the current loan term from two years to five years for any loan amount not forgiven. Business owners will now have five years to repay the loan at 1% interest. Additionally, the first payment due for any amounts not forgiven will be deferred six months after the Small Business Administration makes a determination of forgiveness.
If you have any questions about the PPPFA, the PPP, loan forgiveness, or anything else related to COVID-19 relief funding, please give us a call at 601-487-4550.