On June 5, 2020, President Trump signed into law, the Paycheck Protection Program Flexibility Act. The Act was created in response to the lack of flexibility of the Paycheck Protection Program's forgiveness stipulations and has expanded the opportunity to attain complete forgiveness.
Below is a summary of the changes that the Paycheck Protection Program Flexibility Act made to the original Paycheck Protection Program:
- Covered Period: The 8-week covered period eligible for forgiveness has been extended to 24 weeks or December 31, 2020, whichever is earlier. Borrowers can still elect to use the 8-week covered period.
- Payroll/Non-Payroll Cost Ratio (75%/25%): The 75%/25% payroll/non-payroll cost threshold to receive maximum forgiveness has been amended to 60%/40% payroll cost/non-payroll cost. Non-payroll costs are still limited to mortgage interest, rent, and utilities.
- Forgiveness Reductions (FTE & Compensation) Safe Harbors: Businesses that can restore their full-time equivalent (FTE) count and compensation reductions by or before December 31, 2020 are able to eliminate these forgiveness reductions. This restoration was originally required by June 30, 2020.
- New Safe Harbor for FTE: Under certain conditions related to COVID-19, businesses that are not able to maintain their FTE count are still eligible to receive forgiveness through specific documentation.
- Payroll Tax Deferral: Small businesses with PPP loans may elect to defer payroll taxes.
- Deadline to Apply for the PPP Loan: The deadline to apply for a PPP loan has moved from June 30 to December 31, 2020.
- Deadline to Apply for Loan Forgiveness: The deadline to apply for loan forgiveness is extended to 10 months from the last day of the covered period. PPP loan payments will be deferred until the decision on loan forgiveness is made by the lender.
- Loan Terms: Instead of a 2-year term, it has been updated to a 5-year term, still at 1% interest for new loans acquired. Also extended is the deferral payment period of PPP loans from 6 months to 1 year.
As with all changes to this legislation, we will continue to provide updates as we monitor guidance received by the Small Business Administration and the US Treasury.