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New COVID-19 Legislation Provides Flexibility for PPP Loan Borrowers

June 8, 2020

On June 6, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010) (the “PPPFA”) into law.  To date, the PPPFA is the sixth piece of COVID-19 legislation to be enacted.  The PPPFA implements some important amendments to the Coronavirus Aid, Relief, and Economic Security Act’s (the “CARES Act”) Paycheck Protection Program (“PPP”), which we previously discussed here.  The following are some key takeaways from the PPPFA:

  • The “covered period” can be extended to the earlier of 24 weeks or December 31, 2020.  PPP loan borrowers may now be eligible for forgiveness of a covered loan for costs incurred and payments made beginning on the origination date of the covered loan through 24 weeks or December 31, 2020, whichever is earlier.  Recipients who received covered loans before the PPPFA’s enactment may elect for the “covered period” to end on the date that is eight weeks from the origination date.  This eight-week “covered period” was the original “covered period” established under the CARES Act. 
  • The loan forgiveness amount will not depend upon reduction of full-time equivalent employees, if certain requirements are met.  From February 15, 2020 to December 31, 2020, the loan forgiveness amount will not be determined by a proportional reduction in the amount of full-time equivalent employees if the eligible loan recipient documents: (a) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020 and an inability to hire similarly qualified employees for unfilled positions before or on December 31, 2020, or (b) an inability to return to the same level of business activity that such business was operating at before February 15, 2020 due to compliance with requirements or guidance for sanitation, social distancing, or any other worker or customer safety requirements related to COVID-19.
  • Forgiveness limitations require at least 60% of the covered loan be used for payroll.  At least 60% of the covered loan must be used for payroll costs to receive loan forgiveness and up to 40% of such amount may be used for payment of interest on any covered mortgage obligation, any covered rent obligation payment, or any covered utility payment.
  • The payment deferment relief period is now extended to the date when the amount of forgiveness is remitted to the lender.  Previously, the loan repayment deferral period for borrowers with covered loans was a period of not less than six months, but not more than one year.  Now, lenders must provide complete payment deferment relief until the date on which the amount of forgiveness is remitted to the lender.  A similar deferment applies to loans sold on the secondary market. 
  • Borrowers should apply for loan forgiveness within ten months from the end of the “covered period.”  If a borrower fails to apply for forgiveness of a covered loan within ten months after the last day of the “covered period”, the borrower must make payment of principal, interest, and fees on the covered loan starting on that day that is ten months from the last day of the “covered period.”
  • Payment of employer payroll taxes now may be delayed for those who had PPP loans forgiven.  The PPPFA amends language in the CARES Act which prohibited taxpayers from delaying payment of the employer’s portion of Social Security taxes after the PPP loan indebtedness was forgiven in whole or in part.  Now, PPP loan borrowers may delay its portion of Social Security taxes through December 31, 2020. 50% of the amounts will be due on December 31, 2021 and the remaining 50% will be due on December 31, 2022.

Please note that COVID-19 guidance is changing and/or being amended regularly.  As always, we are available to advise and assist you at every turn.