Paycheck Protection Program written on a desk with a notepad, coffee and calculator

Paycheck Protection Program Flexibility Act

On June 5, 2020 the U.S. President signed into law the Paycheck Protection Program Flexibility Act (PPP Flexibility Act). Several Interim Final Rules clarifying the changes and a streamlined application form for borrowers to use for loans made on or after June 5, 2020 were issued by SBA and the Treasury. The new Loan Forgiveness Application revised on June 16, 2020 is also now available.

The material changes to the program are as follows:

  1. Provides a 5-year maturity for loans made on or after June 5, 2020, and provides an option for loans made prior to that date to extend maturity from 2 years to 5 years at the mutual agreement of the borrower and lender.
  1. Extends the loan forgiveness period from 8 weeks to 24 weeks. (For loans made prior to June 5, 2020, borrowers may opt to keep the forgiveness period at 8 weeks.)
  1. The Safe Harbor for full-time employee reduction is changed from June 30, 2020 to earlier of the forgiveness application date or December 31, 2020
  1. Eliminates full-time employee equivalent reduction provision if an eligible recipient, in good faith can document:
    1. an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020 and
    2. an inability to hire similarly qualified employees for unfilled positions on or before December 31,2020; or
    3. is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020 due to requirements established or guidance issued by specified federal agencies during the period beginning March 1, 2020 and ending December 31, 2020 related to maintenance of standards for sanitation, social distancing or any other worker or customer safety requirements related to COVID-19.
  1. Allows taxpayers to qualify for payroll tax deferral even if they have received PPP loan forgiveness effective as if included in the CARES Act.
  1. Borrowers will be eligible for partial loan forgiveness if they use less than 60% of their PPP loan amount for payroll costs during the forgiveness covered period (previously was 75%).
  1. If a borrower submits its forgiveness application within 10 months of the end of the loan forgiveness period, the borrower will not have to make any payments on the loan before the date SBA remits the forgiven amount to the lender.
  1. For borrowers using the new 24-week loan forgiveness covered period, the maximum compensation eligible for loan forgiveness:
    1. Per employee is increased to $46,154 (24 ÷ 52 × $100,000) plus covered benefits such as health care, retirement contributions, and state payroll taxes; and
    2. For self-employed individuals, general partners, and owner-employees, the compensation is capped at 2.5 months of 2019 compensation, with a maximum of $20,833 (2.5 ÷ 12 × $100,000). Corporation owner-employees are included in this cap.
  1. Eligible payroll costs do not include:
    1. Any employer health insurance contributions made on behalf of self-employed individuals, general partners, or S corporation owner-employees because such payments are already included in their compensation.
    2. Employer retirement contributions made on behalf of a self-employed individual or general partner, because such payments are already included in their compensation.
    3. Employer retirement contributions on behalf of owner-employees are capped at 2.5 months’ worth of the 2019 contribution amount. This limit is included on the EZ application but is not included on the full forgiveness application or in the updated interim final rule, but it is possible it will be added in the future.
  1. A simplified EZ Forgiveness application is available to be used by some borrowers

Contact us at (818) 789 1179 for more information about these recent changes and for help understanding if applying for PPP loan forgiveness is the right decision for your business.

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