On June 3, 2020, the United States Congress took action to modify rules and regulations put in place by the Small Business Administration and the Treasury Department regarding the Paycheck Protection Program. The bill was signed by the President on June 5, 2020. Below is a summary of the changes.
- The minimum loan maturity date for loans made after the date of enactment of the PPP Flexibility Act is extended from two (2) years to five (5) years.
- The “covered period” for borrowers to spend loan proceeds on forgivable expenses is extended from 8 weeks to 24 weeks. (Existing borrowers can elect to keep the current 8- week covered period if they prefer.)
- The deadline to cure reductions in full-time equivalent (“FTE”) headcount and salary cuts is extended to December 31, 2020. Potential exemptions for the reduction in forgiveness based on full-time equivalent employee reductions if the borrower is not able to rehire employees or hire replacement employees or cannot return to normal business activities because of health and safety restrictions are also provided.
- The maximum amount of the PPP loan proceeds that can be spent on non-payroll costs has increased from 25% to 40%.
- The deferral period before loan repayments begin is extended from a fixed 6 months to the time at which a final forgiveness decision is rendered by the SBA. (Borrowers who do not seek forgiveness are eligible for a 10-month deferral period.)
- The prohibition on payroll tax deferral for PPP borrowers upon loan forgiveness is eliminated. This means PPP borrowers can take advantage of the payroll tax deferral provided for in the CARES Act without being required to stop deferring the payment of those taxes if and when their PPP loan is forgiven.
Once in effect, these changes will give PPP borrowers some much-needed relief and flexibility with their loan and may prevent them from facing penalties.