On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020, also known as the Flexibility Act, was enacted, updating key provisions of the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act. Below is a summary of the changes made by this Act. The full text can be found here: https://www.congress.gov/116/bills/hr7010/BILLS-116hr7010eh.pdf
I. Maturity of Paycheck Protection Program (“PPP”) Loans
a. The Act says that the minimum maturity of the loan is 5 years.
b. But loan maturity is still 2 years for those who received their loans prior to the date of this Act, June 5. Borrowers and lenders can agree to change the maturity to 5 years.
II. Extension of Covered Period
a. For the PPP loan, the covered period is changed to February 15, 2020 through December 31, 2020. Prior to this change, the covered period ended June 30, 2020.
i. This does not mean that the time to get a PPP loan is extended until December 31, 2020. In fact, you still must apply for the PPP loan on or before June 30, 2020.
ii. It merely means that the PPP loan proceeds may be spent on allowable uses until December 31, 2020.
b. For the forgiveness, the covered period ends on the earlier of (1) 24 weeks after the origination of the loan or (2) December 31, 2020. Prior to this change, the covered period ended 8 weeks from the origination of the loan.
i. Prior to this Act, the borrower had to eliminate reductions in salary/wages or employees by June 30, 2020. Now, the borrower has until December 31, 2020.
ii. A borrower that received a PPP loan before this Act was enacted may elect to use a covered period that ends 8 weeks after the origination of the loan.
III. Change to Amount that Must be used on Payroll Costs
a. At least 60% of the loan must be used on payroll costs (down from 75%) to be eligible for forgiveness.
b. The language of the statute seems to indicate a “cliff,” but the SBA’s interim final rule from June 11 says that SBA will not apply the 60% test as a cliff.
IV. New Exemption Based on Employee Availability
a. A new exemption to the reduction in loan forgiveness due to reduction in full-time equivalent employees is added.
b. “During the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness under this section shall be determined without regard to a proportional reduction in the number of full-time equivalent employees if an eligible recipient, in good faith –
i. (A) is able to document –
1. (i) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and
2. (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
ii. (B) 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 compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Center for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.”
V. Extension of Deferral Period
The PPP loan is deferred until the amount forgiven is remitted to the lender. If the borrower does not apply for forgiveness, the loan is deferred until 10 months after the last day of the covered period, which is the earlier of December 31, 2020 or 24 weeks from the origination of the PPP loan.
VI. Availability of Deferral of Employer Payroll Taxes
a. Prior to this Act, borrowers who had their PPP loan forgiven were not eligible to delay their payment of certain employer payroll taxes under section 2302 of the CARES Act. This Act now permits all borrowers to delay the payment of certain employer payroll taxes, regardless of whether the PPP loan is forgiven.
b. In short, section 2302 of the CARES Act permits an employer to defer 50% of the employer’s share of social security taxes until December 31, 2021 and the remaining 50% to December 31, 2022.