Increased Flexibility for PPP Loan Borrowers

Dear Clients and Friends,

Some good news for PPP loan borrowers! House Bill 7010, entitled the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), was signed into law on Friday, June 5, 2020.

Some of the key changes provided by the PPP Flexibility Act to the PPP loan program include:

  1. Extension of “Covered Period”. The PPP Flexibility Act extends the ‘covered period’ to 24 weeks (to end not later than December 31, 2020) but allows PPP borrowers who had already received their loan proceeds before the PPP Flexibility Act was adopted to elect to use the original, 8-week covered period for purposes of calculating PPP loan forgiveness amounts.   This change will make it more likely that more of a PPP borrower’s PPP loan will qualify for forgiveness.
  1. Payroll/Non-Payroll Ratio Reduced. The minimum percentage of PPP loan proceeds required to be spent on payroll will be reduced from 75% to 60%.  This change will allow PPP borrowers to spend up to 40% of their PPP loan proceeds on permissible non-payroll expenditures, such as mortgage interest, rent and utilities.   This change should help PPP borrowers who would have otherwise not fully qualified for PPP loan forgiveness (as they would not have been able to spend 75% of their PPP loan proceeds on payroll).  Important note:  the PPP Flexibility Act provides that if a PPP Borrower does not spend at least 60% of the PPP loan proceeds on payroll, then the PPP Borrower would not qualify for PPP loan forgiveness at all.  This is a significant change from the terms of the original PPP loan program, which provided for a reduction in, but not elimination of, the amount of forgiveness for the PPP Loan for borrowers who did not spend at least 75% of the PPP loan proceeds on payroll. This provision may be changed by subsequent amendments, but for now remains a part of the PPP Flexibility Act.
  1. Extension of Time to Restore Workforce and Wages. The deadline for PPP Borrowers to restore the number of full-time employee equivalents (FTEs) and wages to the levels they were prior to the COVID-19 pandemic has been extended from June 30, 2020 to December 31, 2020.  This change should assist many businesses who cannot yet return to full operations and have been operating on a limited staff or with reduced wages during this pandemic.
  1. New Exceptions to Requirements to Restore Workforce. The PPP Flexibility Act provides two new exceptions to the requirement to restore the workforce to pre-pandemic levels in order to obtain PPP loan forgiveness. These two new exceptions allow borrowers to make adjustments to the requirements for loan forgiveness that FTE levels be maintained, if they provide documentation showing that (a) they are unable to rehire similarly qualified employees for unfilled positions on or before December 31, 2020; or (b) they are unable to return to the same level of business activity between March 1, 2020 and December 31, 2020, as they experienced before February 15, 2020, due to compliance requirements established or guidance issued by the U.S. Department of Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA), relating to sanitation, social distancing or any other worker or customer safety requirements related to COVID-19.
  1. Payroll Taxes Can Be Deferred. The PPP Flexibility Act will allow PPP borrowers to defer the employer portion of their federal payroll taxes for up to two (2) years as provided in the CARES Act, even if the PPP loan has been forgiven.
  1. Extension of Term of PPP Loans. The minimum term of any PPP loan which is not forgiven will be extended from two (2) years to five (5) years.  This change will help PPP borrowers manage their payments over a longer period of time.

We anticipate further guidance may be issued by the SBA and the IRS in connection with the PPP Flexibility Act, and other provisions of the original PPP loan program that remain unclear.  We hope this information is helpful to you and your organization.

For further information, please join us for a PPP Loan Forgiveness Update webinar hosted by NHADEC and the NH Tech Alliance on Thursday, June 25th at 11:00 a.m.   You can register for this webinar at: https://www.crowdcast.io/e/ppp-loan-forgiveness/register

 

 

 

 

 

 

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