Complete Story
06/17/2020
Paycheck Protection Program Flexibility Act of 2020
Sources: Lisbeth Lyons, Adriane Harrison, NAPCO Media/PRINTING United Alliance, June 12, 2020; U.S. Small Business Administration, June 12, 2020; Fisher Phillips, June 17, 2020
On June 5, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020, which amends the CARES Act and eases rules on how and when small businesses can use loans and still be eligible for forgiveness.
If you have a Paycheck Protection Program (PPP) loan now, the government is vowing to make the forgiveness application process easier for you.
PPP loan periods have been extended from the original 8 weeks to 24 weeks—or December 31, 2020—whichever comes first. This gives companies more time to spend the money to achieve the forgiveness criteria. For instance, spending the money on payroll will be easier because the loan period has been tripled. This will help offset reduced payroll expenses due to reduced headcount.
For loans made after June 5, it extended the maturity date of the loan from two years to five years. The maturity date can also be extended for loans made before June 5, if the borrower and lender mutually agree. Previously, the loans had a six-month deferral before the first repayment installment, and the note was repaid over a two-year period at 1% interest. Now, the first payment for the loans are not due until ten months after the close of the loan period, and payment of the loan will be made over a five-year period. The interest rate is unchanged at 1%.
Now, only 60% of the PPP loan has to be spent on payroll, rather than the original 75%, in order to be forgiven. Consequently, 40% of the PPP loan can be spent on non-payroll expenses such as rent, mortgage interest and utilities. There will not be proportional forgiveness if the 60% payroll figure is not met because companies have a longer period in which to spend the money on payroll. Headcount for full-time equivalent employees, which previously had to be restored by June 30, is now extended to December 31, 2020. The headcount will be forgiven if the company can document that it is unable to rehire employees or hire similarly qualified employees for the unfilled positions by December 31, 2020, OR the company has not returned to the same level of business activity that it was at before Feb. 15, 2020, due to compliance with federal requirements or guidance relating to standards of sanitation, social distancing, or other worker / customer safety requirements related to COVID-19.
PPP loan recipients do not need to wait for the allowable 24 weeks to apply for forgiveness. Once the PPP money has been spent, a business is able to begin the process.
View the updated Paycheck Protection Program Loan Forgiveness Application
