Paycheck Protection Program Flexibility Act of 2020 – PPP Loan Update

The President signed the Paycheck Protection Program Flexibility Act of 2020 (The Act) on Friday, June 5th, 2020 to give small businesses more flexibility in how they spend federal loans given as part of the CARES Act. If you’re not familiar with the CARES Act and the original Payment Protection Program (PPP) Act, check out the PPP Basics here.

Here are the changes that you need to know:

Extended Covered Period

The Covered Period, which begins on the loan disbursement date or first payroll date, has now been extended to the earlier of 24 weeks and December 31, 2020, up from the original 8 weeks. Now borrowers have an additional 16 weeks to spend the loan proceeds and comply with the loan requirements. A provision allows borrowers who received their PPP loans before the Act to elect either the 8 week period or the 24 week period.

The 75%/25% Rule Has Been Revised

Borrowers can now spend up to 40% of the loan proceeds on non-payroll costs instead of the previous 25%. That means at least 60% of the loan proceeds must be spent on payroll costs (wages, salaries, vacation/sick pay) and no more than 40% on non-payroll costs (rent, utilities and mortgage interest) in order to receive full loan forgiveness. Previously, the Act required a minimum of 75% to be spent on payroll and 25% on non-payroll costs.

Updated Loan Terms

The maturity date of PPP loans has been increased from 2 years to 5 years for loans disbursed after the passage of the Act. This only applies to the portion of the loan that was not forgiven. If a borrower adheres to the rules to maximize their PPP loan forgiveness, there will not be any portions of the loan that require repayment.

Amended Loan Deferral Period

The loan deferral period has been amended to be until the loan forgiveness is remitted to the lender or up to 10 months after the Covered Period has ended. The previous loan deferral period was 6-12 months. The amendment allows borrowers more time before they begin paying back the unforgiven portions of their loans.

The Rehire Period Now Ends on Dec. 31, 2020

Borrowers now have until December 31, 2020 to rehire workers, who were laid off or furloughed, and to restore employee compensation levels to levels prior to February 15, 2020. Previously the Rehire Period ended on June 30, 2020.

Payroll Tax Deferral Ban Lifted

A payroll tax deferral is now available to all PPP borrowers. In the original Act, employers were prevented from deferring payment of payroll taxes if they received forgiveness for their loans in any capacity. That ban has now been lifted.

What Happens Now?

If the bill is signed into law by the President, the SBA’s loan forgiveness application will be updated.

If you are not familiar with the application, it requires meticulous record-keeping & accounting and is very complex. The complexity may cause borrowers to fill out the application incorrectly leading them to have to pay back a portion of their loan. It is best to review the application with an experienced accountant or CPA.

If you have questions or would like to discuss tax or accounting matters with us, please email us at colin@horsfordcpa.com or call us at (347) 201-2045

This post is up to date as of June 4, 2020. It is intended to be used for informational purposes only and does not constitute legal, business, or tax advice. It is always best to consult with a qualified professional before making decisions with respect to matters referenced in this post.

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