The new Paycheck Protection Program Flexibility Act of 2020 is good news for small business owners. Adjustments to the PPP loan forgiveness rules strive to limit the hardships placed on business owners who accepted loans by providing increased opportunities for loan forgiveness. Signed into law on June 5, the act extends the Payment Protection Program loan maturity date, provides borrowers more control over how to use the funds, and makes it easier to obtain forgiveness. Here are the six main things you need to know about the new Paycheck Program Flexibility Act and how it may affect your small business.
Extended Maturity Date From 2 Years to 5 Years
The Payment Protection Program Flexibility Act (PPPFA)
modifies the Paycheck Protection Program
, established first under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act did not define minimum maturity dates for loan amounts. The new law now states that “The covered loan shall have a minimum maturity of 5 years and a maximum maturity of 10 years from the date on which the borrower applies for loan forgiveness under that section.”
Extension to Make Expenditures to a Maximum of 24 Weeks
Under the extension, small business owners who received PPP loans before June 30th, 2020 will be able to make allowable expenditures until December 31st, 2020. The covered period of the loan was originally an eight-week timeframe between February 15, 2020 to June 30, 2020. The Flexibility Act now extends the covered period from 16 to 24 weeks from the original loan date, or December 21st, 2020, whichever is earlier.
Extension of Timeline to Rehire Employees
Under the new law, businesses now have until December 31, 2020, to rehire workers in order for their salaries to count toward forgiveness. This law does not
change the way that salaries impact loan forgiveness. The $100,000 employee compensation cap is still in place, as is the employer-owner/contractor cap of $15,385. The extension is intended to ensure that small business owners will close the gaps, thereby ensuring they will receive loan forgiveness.
The Paycheck Protection Flexibility Act helps to clarify some confusion and consternation amongst small business owners regarding language around rehiring requirements laid out in the CARES Act. In the CARES Act
, business owners need to "demonstrate the inability to rehire" employees or "similarly qualified employees on or before December 31st, 2020". Many business owners were justifiably concerned that they would not be able to open at all never mind at the capacity required to reinstate their full staff rosters. With the news Act, these business owners now need to prove that they were unable to resume full business operations before February 15th, 2020 in compliance with Federal Covid-19 health and safety regulatory compliance guidelines.
Mandatory Payroll Spending Reduced from 75% to 60%
Reducing the mandatory payroll spending by 15% will have small business owners sighing with relief. Over and above this reduction comes the 24 week extension which should enable even more qualified small business owners to receive full loan forgiveness.
Extension of Loan Deferral Period
Extending the loan and interest payment deferral period from six months to a non-date specific time gives the Small Business Administration (SBA) time to review the loans in detail, compensate lenders for the forgiven amounts, and notify them where and when loan forgiveness is ineligible. That said however, small business owners who have received a loan must apply for loan forgiveness within 10 months
of the covered loan forgiveness period coming to an end. If you have not applied for forgiveness within that timeframe, loan repayment will begin immediately following. Questions remain about the PPAFA. Small businesses seeking loan forgiveness or deferment should consult with their accounting professional and legal advisor to determine how to best proceed.