The Paycheck Protection Program Flexibility Act (PPPFA)

The PPPFA modifies provisions related to the forgiveness of loans made to small businesses under the Paycheck Protection Program.


Published: 06.08.2020

When: On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act (PPPFA) into law. These amendments are effective as if included in the CARES Act.

What: The PPPFA modifies provisions related to the forgiveness of loans made to small businesses under the Paycheck Protection Program (PPP) implemented in response to COVID-19. The following summarizes how the PPPFA changes the PPP.

The PPPFA reduces the amount of loan needed for payroll from 75% to 60%.
The PPPFA requires only 60% of forgivable expenses be used towards payroll costs, as opposed to 75%. Meaning, the percentage of loan proceeds that must be spent on payroll costs is now reduced allowing borrowers to spend more on overhead and fixed costs such as rent and utilities.    
 
This does not technically change the requirement under the Small Business Administration’s (SBA) First Interim Final Rule that at least 75% of the loan be used for payroll costs, but it seems likely the SBA will issue new guidance to conform its guidelines to this legislation.  
 
The PPPFA extends time period to use loan proceeds from eight weeks to 24 weeks.
Borrowers can now decide whether to retain its current eight weeks covered period or switch to a 24-week covered period. The flexibility to spend the PPP funds over the course of the remainder of the year increases the likelihood of satisfying the criteria for loan forgiveness.  
 
Extending the time period to use loan proceeds does not permit the SBA to continue accepting applications; the PPP application deadline remains June 30, 2020.  
 
The PPPFA prolongs the rehire date deadline from June 30 to December 31, 2020.
Borrowers must restore FTEs and certain salaries to February 15 levels on or before December 31, 2020, extended from June 30th.     
 
The PPPFA eases rehire requirements based on employee availability and social distancing/safety requirements.
In order to avoid a reduction in forgiveness, borrowers that could prove an attempt to rehire an employee who reject the offer will be disregarded.
 
PPPFA adds additional exceptions for a reduced head count should the borrower be able to document the inability to find qualified employees for unfilled positions on or before December 31, 2020, and when the borrower cannot restore business operations to February 15 levels because it is unable to comply with federal requirements or guidance related to COVID-19 (e.g., social distancing, sanitation requirements or customer safety needs).
 
The PPPFA extends the repayment period from two years to five years.
PPPFA eases repayment terms in the event loans or portions of them are not forgiven. Borrowers now will have a minimum of five years instead of two years. The interest rate remains one percent. Also, the first payment will be deferred for six months after the SBA makes a determination on forgiveness.  
 
The PPPFA repealed the provision of the CARES Act that barred PPP forgiveness recipients from deferring employer payroll taxes.
The PPPFA allows borrowers to take advantage of the CARES Act provision allowing deferment of the employer’s payroll taxes. Previously, PPP did not permit deferment of these taxes on the forgivable portion of the loan. Specifically, PPPFA allows borrowers to defer 50% of the employer’s share of payroll taxes until 2021 and the remaining 50% until 2022. 
 
Borrowers should look for additional guidance and rules from the U.S. Treasury Department and the U.S. Small Business Administration. 
 
H.R. 7010 – The Paycheck Protection Program Flexibility Act of 2020:
https://www.congress.gov/bill/116th-congress/house-bill/7010?loclr=cga-search