Late Wednesday, June 3, 2020, the Senate passed the Paycheck Protection Program Flexibility Act of 2020 (the “Act”) that enhances several of the provisions of the Payroll Protection Program (PPP) enacted as part of the CARES Act. The Act has now been sent to the President for signature.
In the CARES Act, PPP borrowers were required to use the funds granted within an eight-week period from the funding date in order for the funds to be eligible for forgiveness. The Act now allows borrowers to extend the period for up to 24 weeks to make it easier to qualify for full or almost full loan forgiveness. As a result, the deadline for spending PPP funds has moved from June 30 to December 31 to accommodate the 24 week periods.
To qualify for full forgiveness, the PPP required that an employer restore its employee count and wages to February 15, 2020 levels by June 30, 2020. This has now been extended to December 31, 2020 to give businesses more flexibility in restoring employees, as states reopen, to qualify for full forgiveness.
The Act reduced the amount of the loan that was required to be used for payroll purposes from 75% to 60%. However, this is now a minimum requirement, meaning that borrowers must spend at least 60% of the PPP funds for payroll or none of the loan will be forgiven.
For borrowers not qualifying for full forgiveness, the loan can now be repaid over five years instead of two, with the 1% interest rate remaining.
PPP borrowers may now also take advantage of the payroll tax deferral allowed under the CARES Act, which was originally prohibited.
New rules and guidance as a result of the Act will be forthcoming and we will continue to keep you informed as information becomes available.