The Paycheck Protection Program Flexibility Act of 2020, passed by Congress, goes to the president for signature


paycheck protection program

The highly anticipated amendments in the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) to the Paycheck Protection Program (PPP), which was part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), passed by Congress and signed by President Trump on March 27, 2020, provides relief to small businesses regarding a number of previously identified provisions of the PPP that were problematic. Once signed by the president, the Flexibility Act will be effective.

The Flexibility Act makes significant changes to the PPP. These changes represent good news for borrowers, and they help further support recipients of PPP loans as intended by the CARES Act. They are outlined here.

  • The time period to incur and pay costs that count toward forgiveness of principal has been changed from 8 weeks to 24 weeks. (Note, however, that borrowers that already have a PPP loan may elect to use an 8-week period instead of the 24-week period, and PPP loans funded after the enactment of the Flexibility Act will be required to use the 24-week period.)
  • The PPP formerly mandated that at least 75 percent of both the loan proceeds and the amount forgiven be used for eligible payroll costs. Now, borrowers are required to use at least 60 percent of the amount of the loan for eligible payroll costs. Note, it appears that if the borrower does not meet the 60 percent threshold, then the borrower would not be eligible for any forgiveness.  
  • The amount of loan principal forgiven will not be reduced by a decrease in full-time employees if the borrower, in good faith, can document:
    • an inability to rehire employees on February 15, 2020,
    • an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or
    • an inability to return to the same level of business activity that the business was operating at before February 15, 2020, due to compliance with CDC and/or OSHA requirements related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
  • The term for repayment of any amount not forgiven has been changed from 2 years to 5 years.
  • The deferral period for payments of principal, interest and fees has been changed from at least 6 months and no more than 1 year until the date on which the amount of forgiveness determined under section 1106 of the CARES Act is remitted to the lender.
  • Borrowers that don’t apply for forgiveness have 10 months from the last day of their applicable covered period before principal, interest and fee payments commence.

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