By Mitchell Plimmer
On June 5, 2020, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law. The law aims to address concerns about the Paycheck Protection Program (PPP) asserted by the U.S. small business community. The initial PPP loan program was created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020 as a bipartisan relief package in response to the pandemic. Overall, the PPPFA is expected to ease complications and burdens connected with the nearly 4.5 million PPP loans that have been made as well as for future PPP loan applicants.
Although the PPPFA amended many aspects and timelines of the PPP loan program, the application deadline of June 30, 2020 still remains in effect. About $130 billion remains to be loaned.
Under the PPPFA, businesses should be aware of the following key amendments:
- Percentage of loan spent on payroll requirements reduced. Addressing one of the biggest complaints from small business advocates, the PPPFA reduced the percentage of loan proceeds required to be spent on payroll expenses for forgiveness purposes to 60%, down from 75%
- Forgiveness period substantially lengthened. The PPPFA extended the "forgiveness period" to 24 weeks from the disbursement date, but not later than December 31, 2020. This is the window of time in which borrowers can spend loan money on authorized expenses and then apply for loan forgiveness on that amount. (The list of eligible expenses for forgiveness did not change, including payroll, utilities, rent, interest on loans, and mortgage payments.)
- Rehire date pushed back. The deadline to rehire workers was pushed back from June 30, 2020 to December 31, 2020.
- Rehiring requirements eased. One of the goals of PPP was to keep an equivalent number of workers on payroll to the number of workers used in the loan amount calculation. The PPPFA eased the PPP requirement that all workers have to be rehired in order for said workers' salaries to factor toward the loan forgiveness amount. Now, a business can still receive forgiveness on payroll amounts with a reduced number of workers compared with pre-pandemic if it can show:
- Inability to hire employees of similar qualifications on or before December 31, 2020);
- Inability to return to an equivalent level of activity that was business was operating on or before February 15, 2020; or
- Inability to rehire a particular worker who was employed on or before February 15, 2020.
Additional details and standards that elaborate on these standards are anticipated. Regardless, businesses should continue thoroughly documenting rehiring efforts.
- Repayment period significantly extended. In situations where loans are not forgiven in full or in part, a business will now have five years, instead of two, to repay at a 1% interest rate. Additionally, the first payment will not be due until six months after the SBA's determination on forgiveness.
The legislative response to the economic challenges will continue to evolve and more regulations, as well as additional guidance, are anticipated. Bradley & Riley, P.C. will continue to keep clients updated as to future policy changes. Please contact us at 319-363-0101 with any questions.