The Paycheck Protection Flexibility Act of 2020 (Bill H.R. 7010) was approved by both the House of Representatives and the Senate and was signed into legislation by President Trump today. This simple bill amends the CARES Act Paycheck Protection Program and will allow small businesses more flexibility in using the rescue loan funds. Here is a summary of the Act.
COVERED PERIOD OF 8 WEEKS IS CHANGED TO 24 WEEKS
The Covered Period provided for in the PPP Loan Forgiveness Application has changed from an eight-week (56-days) to a twenty-four week (168-days). The first day of the Covered Period continues to be the same as the PPP Loan Disbursement Date. For example, if the Borrower received its PPP loan proceeds on Monday, June 8, the first day of the Covered Period is June 8 and the last day of the Covered Period is Sunday, November 22.
PPP LOAN APPLICATION DEADLINE REMAINS UNCHANGED
The loan application deadline continues to be June 30, 2020.
New borrowers have a covered period of twenty-four weeks after the loan proceeds are received or December 31, 2020, whichever is earlier. However, you should expect some additional guidance on this.
SAFE HARBOR DATE EXTENDED & NEW EXCEPTIONS TO FULL-TIME EQUIVALENT REDUCTION
The period of time whereby a borrower can avoid a reduction of its loan forgiveness amount has changed. The safe harbor date to restore a full-time equivalent reduction for those employed on February 15, 2020 is now extended to December 31, 2020 (previously was June 30, 2020).
New exceptions for full-time equivalent reduction if the borrower, in good faith is able to document the following:
An inability to rehire individuals who were employees on February 15 and unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020 or is able to document an inability to return to the same level of the business activity was operating at before February 15, due to compliance with Federal requirements on March 1 and ending December 31, related to COVID-19 (e.g. social distancing or worker/customer safety requirement).
LIMITATION ON FORGIVENESS
An eligible borrower shall use at least 60% (decreased from 75%) of the covered loan amount for payroll costs. The change also indicates this is a minimum threshold and if not met, none of the loan is eligible for forgiveness. The bill modified eligible nonpayroll costs as a % of the loan forgiveness amount. A borrower may now use up to 40% (increased from 25%) of the covered loan amount for any payment of:
- interest on any business mortgage obligation on real or personal property that was incurred before February 15 (but not any prepayment or payment of principal)
- payments on business rent obligations on real or personal property under a lease agreement in force before February 15
- business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15
Additionally, a borrower that received a covered loan before the date of enactment of the Bill may elect to end on the original 8-weeks after the loan funding rather than the extended period of 24 weeks.
EXTENSION OF DEFERRAL PERIOD
The period whereby a deferral of loan payment of principal and interest (1%) is extended from 6 months until the date on which the loan forgiveness is remitted to the SBA lender by the SBA. SBA has up to a 90 day period after the SBA lender issues its decision to SBA, then SBA will remit the approved forgiveness amount to the SBA lender subject any SBA review of the loan or loan application.
If a borrower fails to apply for forgiveness by submission of Treasury’s PPP loan forgiveness application within 10 months after the last day of the Covered Period then payments of principal and interest will start. Covered Period (8-weeks or 24-weeks) depends when the loan was funded and an agreement with the SBA lender to modify existing Covered Period in loan agreement from 8-weeks to 24-weeks.
DELAY OF PAYMENT OF EMPLOYER PAYROLL TAXES
The CARES Act provides that employers may defer the payment of the employer’s portion of Social Security taxes (6.2% of wages). The deferral begins March 27 and ends December 31, 2020. One half of the Self-Employment taxes of self-employeds are also eligible for the payment deferral. The payment of the deferred payroll taxes is (50%) payable on December 31, 2021 with the remainder payable on December 31, 2022. The Bill removes the exception on employers that received a PPP loan may not defer the deposit and payment of employer payroll taxes after the employer receives a decision from the SBA lender that the loan was forgiven.
Here is the link to Bill H.R.7010.