Changes to PPP Rules Set After Senate Passes Paycheck Protection Flexibility Act of 2020
Late Wednesday evening, the U.S Senate passed by unanimous consent the Paycheck Protection Program Flexibility Act of 2020, to ease some of the original rules of the PPP application and forgiveness rules from the CARES Act and the subsequent guidance from the Treasury Department. The President signed off on the act today, June 5th, 2020. The details of the Act did not change from the House version of the bill that passed last week. The quick passage of the bill helps businesses who have received PPP loans by extending the time for measuring forgiveness and offering better terms to achieve full loan forgiveness.
The new rules of the act include the following:
- The covered period for measuring payroll and covered mortgage interest, rent, and utilities for loan forgiveness has been increased from the original 8 weeks to 24 weeks.
- Loan recipients can still choose to use the 8-week covered period measurement.
- The limitation on forgiveness amounts based on payroll costs has been decreased from 75% of the covered loan amount to 60%. This change creates a cliff for achieving loan forgiveness – if payroll costs are below the new 60% of the loan amount, the borrower will not achieve any level of forgiveness.
- The loan term has been expanded from 2 years to 5 years. Loans already issued can be changed to the 5-year period by mutual agreement of the borrower and the lender.
- Several details of the measurement of full-time equivalent employees for the forgiveness calculations have been favorably changed:
- Employers have until December 31, 2020 to restore their workforce to meet the FTE requirements for forgiveness (instead of June 30, 2020).
- Exceptions for FTE reductions are available if you can document the inability to
- Rehire people who were employees on February 15, 2020
- Hire similarly qualified employees for unfilled positions by December 31, 2020
- Return to the same level of business activity before February 15, 2020 due to compliance with established or guidance issued by the CDC, etc. related to COVID-19.
The SBA continues to report that PPP funds are still available. Applications for loans will only be taken through June 30, 2020.
The application for PPP loan forgiveness that currently exists will need to be updated. These applications are not due until 10 months after the last day of the covered period of the loan. The extended covered period for measurement provides more time for businesses to accurately prepare for submitting the applications. Additionally, the 24-week period allows for more payroll costs to be included in the calculations to meet the forgiveness limitations.
Additional guidance from Treasury is expected soon to answer more specific questions related to owner compensation, self-employed individuals, the new forgiveness application, and much more. We will continue to update our resources at www.squirecares.com as information is released. You can also subscribe to our weekly newsletter for updates.