In an effort to address obstacles faced by small businesses seeking relief under the Paycheck Protection Program (“PPP”) and the provisions of the Coronavirus, Aid, Relief and Economic Security Act (CARES Act) the U.S. Senate passed the Paycheck Protection Program Flexibility Act of 2020 on June 3, 2020 (the “Act’), which Act has now been signed into law by the President. As the Act’s name suggests, it is intended to provide more flexibility for PPP borrowers by amending certain provisions of the CARES Act as highlighted below:
· The maturity for loans with any unforgiven amounts is extended from 2 years to 5 years for any loans made after the date of the Act. Borrowers and lenders are free to modify the maturity date for PPP loans disbursed prior to the date of the Act.
· The “Covered Period” is extended from June 30, 2020 to December 31, 2020. As a result, the period of forgivable loan expenses is extended from June 30, 2020 to the earlier of (i) 24 weeks from the date of loan origination, or (ii) December 31, 2020.
· Likewise, the period for rehiring employees is extended to December 31, 2020. The amount of loan forgiveness will not be reduced for a failure to restore employees if a loan recipient is able to demonstrate (i) an inability to rehire individuals who were employees on February 15, 2020 and an inability to hire similarly qualified employees on or before December 31, 2020; or (ii) an inability to return to the same level of business at or before February 15, 2020 due to worker or customer safety requirements related to COVID-19.
· Previous PPP guidance issued by the SBA required borrowers to spend 75% of PPP loan funds on “payroll costs” to obtain maximum loan forgiveness. The Act reduces this requirement to 60% of the loan balance, allowing borrowers to spend 40% on non-payroll costs during the Covered Period. However, notably, borrowers who do not reach the new 60% threshold will not be entitled to any loan forgiveness.
· The Act replaces the 6 month repayment deferral period with deferral until the date the amount of loan forgiveness is determined. If a borrower fails to apply for loan forgiveness within 10 months after the last day of the Covered Period, the borrower must begin to make payments of principal, interest, and fees.
· The CARES Act originally provided that any business receiving PPP loan forgiveness was not eligible to defer its social security payroll tax obligations. The Act amends the CARES Act to allow borrowers to defer their 2020 social security payroll tax obligations regardless of whether any PPP loan amount is forgiven. The employer’s share of the social security payroll tax is not treated as a forgivable payroll expense.
· The Act does not address previously issued IRS guidance advising that business expenses funded by forgiven PPP loan amounts will not be allowable as deductions for income tax purposes.
For any questions about, or to discuss, the Paycheck Protection Program as amended by the Paycheck Protection Program Flexibility Act, contact the following Riley Riper Hollin & Colagreco attorneys: Edward J. Hollin, Robert A. Cohen, Jonathan A. Jordan, or Jeff Cronin.
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