President Trump Signs Law Easing PPP Forgiveness Restrictions

Sarah Longson
Sarah Longson

On June 5, 2020, President Trump signed the PPP Flexibility Act  into law.  The Act is intended to address some of the flaws in the Payroll Protection Program and subsequent guidelines that were revealed after borrowers attempted to navigate the requirements for use of loan proceeds in order to qualify for loan forgiveness. The PPP Flexibility Act consists of seven changes related to forgiveness, itemized below.

  1. PPP borrowers can choose to extend the eight week forgiveness covered period to 24 weeks, or they can keep the original  eight week period. The extension is intended to make it easier for more borrowers to obtain forgiveness.
  1. The new 24-week period also extends the June 30 deadline by which borrowers had to restore their workforce and/or salary and wages in order to avoid a reduction of the amount of loan forgiveness. The restoration now must be by December 31, 2020
  1. The payroll expenditure requirement in order to obtain forgiveness is reduced from 75% to 60%; however, the language of the Act states as follows: “to receive loan forgiveness, an eligible recipient shall use at least 60% of the covered loan for payroll costs.” This language suggests that if the 60% threshold isn’t met, none of the loan will be eligible for forgiveness. The amendment will require some new guidance from the SBA, as previous guidance did not eliminate forgiveness entirely if the borrower failed to meet the 75% threshold.
  1. The Act includes two new exceptions that will permit borrowers to receive full PPP loan forgiveness even if they don’t fully restore their workforce. Previous SBA guidance had allowed borrowers to exclude from required forgiveness reduction calculations those employees who turned down documented good faith offers to be rehired at the same hours and wages. The Act now also excludes from the reduction calculations a reduction in workforce that could not be restored because (a) the borrower could not find qualified employees for unfilled positions, and (b) the borrower is unable to fully restore operations to pre-February 15, 2020 levels because of requirements (set by DHHS, the CDC, or OSHA) for social distancing, sanitation, or customer safety needs.
  1. Borrowers now have five years to repay any portion of the loan that is not forgiven instead of two. The interest rate remains at 1%. This is a restoration of the original term of the loan set forth in the PPP that SBA guidelines had later reduced.
  1. The Act also now allows borrowers to defer payment of 50% of the employer’s share of payroll taxes to December 31, 2021, and the balance to December 31, 2022, which had previously been denied to PPP borrowers under Section 2302(a) of the CARES Act.
  1. Borrowers who fail to apply for forgiveness within 10 months of the last day of the 24-week covered period must start making payments on the loan at that time.

To learn more about how this law will affect your business, please contact us by calling (410) 727-4300.

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