On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act into law.  After a lengthy discussion in Congress, the Paycheck Protection Program Flexibility Act provides much needed flexibility to employers on how they can utilize their Paycheck Protection Program loan while also maximizing loan forgiveness.  Here are the main takeaways:

Maturity Period Set at 5 Years

  • The law establishes a minimum maturity of five years for a Paycheck Protection loan with a remaining balance after forgiveness and eliminates a provision that makes a Paycheck Protection loan recipient who has such indebtedness forgiven ineligible to defer payroll tax payments.  In other words, businesses who must repay a PPP loan will have at least 5 years to do so, and employers who receive loan forgiveness can still qualify for deferred payroll tax payments. 

Using the Funds and Loan Forgiveness

  • The law extends the Covered Period during which a loan recipient may use such funds while remaining eligible for forgiveness.  Specifically, the Covered Period is extended from 8 weeks to 24 weeks.  This allows the employer to spread out the loan and mitigate long-term financial exposure.
  • Under the former PPP, employers were required to use 75% of their loan for Payroll Costs (as defined by statute).  Under the new PPP, that number is decreased to 60%.  This gives employers more flexibility and allows them to put a greater portion of the forgivable loan toward things like interest on a mortgage obligation, rent under a lease agreement, or utilities.

 Bringing Employees Back

  • The law extends the period in which an employer may rehire or eliminate a reduction in employment, salary, or wages that would have otherwise reduced the forgivable amount of the loan.  The date is extended from June 30, 2020 to December 31, 2020. 
  • The law also adds a new layer of protection for employers seeking loan forgiveness who may have experienced a reduction in employee numbers.  Specifically, the forgivable amount must now be determined without regard to a reduction in the number of employees if the recipient is: (1) unable to rehire former employees and is unable to hire similarly qualified employees; or (2) unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19.  The employer must make a good faith effort in its attempt to bring back its former employees or to rehire new ones.

Paying the Loan Back

  • The law revises the deferral period for Paycheck Protection loans, allowing recipients to defer payments until they receive compensation for forgiven amounts.  Recipients who do not apply for forgiveness shall have 10 months from the program’s expiration to begin making payments.