New Options for PPP Loan Recipients: Paycheck Protection Program Flexibility Act

New provisions in the Paycheck Protection Program Flexibility Act extend the coverage period and time to repay unforgiven portions of the loan, among other modifications.

DSB_Marketing June 5, 2020

The U.S. Senate passed the House version of Paycheck Protection Program (PPP) legislation June 3, 2020, tripling the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness of the loans.

The bill passed in a unanimous voice vote hours after Wisconsin Sen. Ron Johnson initially blocked it. Among the key provisions is a change in the threshold for the amount of PPP funds required to be spent on payroll costs to qualify for forgiveness to 60% of the loan amount.

The new legislation, H.R. 7010 is called the Paycheck Protection Program Flexibility Act.

The vote had to be unanimous because the Senate is not officially in session. That meant that any senator could force the matter to be delayed until the Senate returned to Washington with enough members for a quorum and a vote.

Leaders from both parties in the Senate pushed to pass the legislation on June 3, 2020, as the clock on the initial eight-week window was nearly expired for the first recipients of PPP loans.

Following is a summary of the legislation’s main points compiled by the AICPA:

  • PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
  • The payroll expenditure requirement drops to 60% from 75% and the US Treasury and SBA clarified guidance that borrowers who spend less than 60% on payroll may still be eligible for loan forgiveness. Under CARES Act guidelines, a borrower was required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs.
  • Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, 2020, a change from the previous deadline of June 30.
  • The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020 levels due to COVID-19 related operating restrictions.
  • Borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%.
  • Borrowers can now defer the employer’s share of FICA payroll taxes for two years, even before loan forgiveness. Half of the payroll taxes will be due in 2021, with the rest due in 2022.

Read our related blog post about the deductibility of expenses covered by PPP loans on 2020 tax returns.