Increased Flexibility in Paycheck Protection Program

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On June 5, 2020, the Paycheck Protection Program (PPP) was amended by the Paycheck Protection Program Flexibility Act of 2020 (PPPFA). PPPFA gives borrowers relief from some of the original terms of the PPP loans (as well as terms imposed by the Small Business Administration (SBA) through Interim Final Rules and other guidance) by providing a longer term for repayment of PPP loans, providing more flexibility in obtaining forgiveness for PPP loans and allowing a delay in payment of employer payroll taxes for borrowers with PPP loans. Specifically, PPPFA provides for the following changes:

  1. The PPP loan term was increased from two years to five years.
  2. The definition of “covered period” was increased to the earlier of (a) 24 weeks after loan origination or (b) December 31, 2020. This is an increase from the eight-week period prescribed by the SBA. This increase allows for a longer period for eligible expenses to be incurred and paid and a potential increase in PPP loan forgiveness amounts. However, for existing loans, if preferred by the borrower, the eight-week covered period may still be used.
  3. The reduction in PPP loan forgiveness due to a reduction in full time equivalent employees was qualified by allowing businesses to forgo forgiveness reduction if borrowers are able to document:
    1. An inability to rehire individuals who were employees of the borrower on February 15, 2020;
    2. An inability to rehire similarly qualified employees for unfilled positions on or before December 31, 2020; or
    3. 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 or guidance related to the maintenance of standards for sanitation, social distancing or any other safety requirement related to COVID-19.
  4. The required percentage of the PPP loan amount to be used for payroll costs was decreased from 75% to 60%.
  5. The time period for deferral of payments of principal, interest and fees associated with PPP loans was increased to the date on which the forgiveness amount is remitted to the lender or, if forgiveness is not applied for, 10 months after the end of the covered period.
  6. PPP loan borrowers are no longer prohibited from participating in payroll tax deferrals allowed under Section 2302 of the CARES Act.

Reprinted with permission. Originally published by Bradley Arant Boult Cummings LLP. Copyright 2019.