The Paycheck Protection Program (PPP) is a loan designed to incentivize small businesses to keep their employees on payroll. It was established as part of the Coronavirus Aid, Relief, and Economic Security Act in March 2020 and since then, it has been the subject of additional stimulus bills, legal guidance, and interim final rules. In the latest development, Congress passed the Paycheck Protection Program Flexibility Act of 2020, which is a bill that provides borrowers with greater flexibility in regard to spending their PPP funds without compromising forgiveness eligibility. President Donald Trump signed the bill into law on Friday, June 5, 2020.
WHAT IS INCLUDED IN THE BILL?
The bill, which passed with bipartisan vote, makes the following amendments to the Paycheck Protection Program to provide relief to borrowers:
- Loan repayment terms – For unforgiven PPP loans that need to be repaid, the bill extends the minimum loan term from two years to five years.
- Payroll costs vs. non-payroll costs – The bill reduces the portion of PPP funds that must be spent on payroll costs from 75% to 60%, and subsequently the nonpayroll cost limitation was raised from 25% to 40%.
- Covered period extension – The covered period during which borrowers must spend the PPP funds to be eligible for forgiveness was originally set at 8 weeks. The Paycheck Protection Program Flexibility Act of 2020 has extended that covered period to 24 weeks from the date of the origination of the loan.
- Payroll tax deferment – The bill permits borrowers to defer payroll taxes without being penalized while still remaining eligible for loan forgiveness.
- Extension of rehiring safe harbor – The rehiring safe harbor has been extended by 6 months and this will provide borrowers with additional time to restore payroll levels or rehire employees without encountering a reduction in the amount of forgiveness that they are eligible for. Originally, the rehiring safe harbor was valid until June 30, 2020 and the new date to mark down is December 31, 2020.
- Forgiveness Application Deadline – The deadline to submit a forgiveness application is 10 months after the end of the 8 to 24 week loan period. If borrows do not submit the application must begin paying on the principle and interest of that loan.
In addition to what is listed above, the bill provides loan forgiveness eligibility exemptions for borrowers that are not able to rehire an employee or a replacement. Loan forgiveness eligibility exemptions are also available for borrowers that are not able to return to the same level of business due to complying with Covid-19 related orders or circumstances.
If you are a Paycheck Protection Program borrower, we recommend reviewing the bill carefully and speaking to your lender if you have any questions.
We will be keeping our eyes peeled and our ears to the ground to monitor any additional developments regarding the PPP and we will be sure to deliver updates as necessary. For more information about updates to the Paycheck Protection Program Flexibility Act, please do not hesitate to reach out to us here at Camargo Insurance Agency.