June 5, 2020 – President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020, which was just passed by the Senate and the House of Representative just days before on June 3, 2020 and May 28, 2020, respectively. The bill is now currently sitting with President Trump to sign into law.
This bill loosens the requirements surrounding the forgiveness requirements of loans provided to small businesses under the Paycheck Protection Program (PPP), better known as a “PPP Loan”.
Instead of requiring that 75% of the loan be used to cover payroll costs, with the remaining 25% to be used for rent, utility, and mortgage obligations, the bill changes this to a 60%/40%. This give leeway to PPP Loan recipients to utilize more of the loan for costs other than maintaining payroll.
Additionally, this bill does the following—
- Extension of 8-Week Use Period to 24-Weeks: The Act extends the “covered period” from the original eight-week period provided under the CARES Act to the earlier of the following two dates:
- 24 weeks after the date of loan origination
- December 31, 2020
- Loan Maturity: For those who don’t receive full forgiveness on their loan, the new act extends the loan maturity to five years for new PPP loans issued after enactment. However, borrowers and lenders can mutually agree to extend the loan maturity on existing loans to conform to the new five-year maturity.
- Exemption Based on Employee Availability and Business Activity: The bill extends the period in which an employer may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a PPP Loan from June 30, 2020 to December 31, 2020. However, the forgivable amount must be determined without regard to a reduction in the number of employees if the recipient is (1) unable to rehire former employees and is unable to hire similarly qualified employees, or (2) unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19.
- Repayment Deferral Period: It revises the deferral period for PPP Loans, allowing recipients to defer payments until they receive compensation for forgiven amounts. Recipients who do not apply for forgiveness shall have 10 months from the program’s expiration to begin making payments.
- Removing Ineligibility for Payroll Tax Deferment: It also eliminates a provision that makes a PPP Loan recipient who has such indebtedness forgiven ineligible to defer payroll tax payments.
Look for more of Evolution Tax & Legal’s updates on this bill once it is finalized into law.