The PPP Flexibility Act was signed into law by President Trump on June 5, 2020. The legislation provides much-needed time and flexibility for Paycheck Protection Program (PPP) borrowers to use their loan funds, qualify for loan forgiveness and gain additional relief from the program’s original requirements.
The major areas of the PPP that the Act did or did not address are outlined below.
| Extension of covered period and rehiring deadline | Earlier of 24 weeks or December 31, 2020 | |
| Can the 8-week covered period in the original legislation still be used as the covered period? | Yes, for loans made before enactment date, at borrower’s election. | |
| Ratio of Payroll Protection Loan proceeds spent on payroll and non-payroll costs
|
60% / 40% | |
| Minimum payroll expenditures (i.e. cliff) to qualify for loan forgiveness | 60% of loan proceeds must be spent on payroll costs to achieve full loan forgiveness, but partial forgiveness can be achieved if the 60% is not met. | |
| Extension of Application Period Ending Date |
Open to interpretation. Senator Ron Johnson (R-WI) sought assurances that extension of the June 30 deadline would not allow additional time for businesses to apply for loans – only more time for businesses to rehire workers. Instead, he entered a letter into the Congressional Record memorializing his interpretation. | |
| Repayment Period | From 2 to 5 years for loan made after enactment | |
| Payment Commencement Deferral | From 6 months to date of forgiveness, or, if a borrower does not apply for forgiveness, 10 months after the end of the covered period. Applies to existing and future loans. | |
| Approved Expenditures | No change | |
| Employer FICA Payment Deferral | Allows borrowers that receive loan forgiveness to defer paying employer’s portion of FICA for the remainder of the year. | |
| FTE/Pay Rate Restoration | Allows employers until December 31, 2020 to restore reductions in workforce or pay that would reduce the amount of loan forgiveness. | |
| FTE Workforce Reduction Limitations | For loan forgiveness, workforce reduction limitations will be waived if employers can document one of the following: 1) It has been unable to rehire workers who were employees on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or 2) It has been unable to return to the same level of business activity that existed on February 15, 2020, due to its compliance with health guidelines related to sanitation, social distancing or other customer or worker safety requirements. | |
| Maximum amount of cash compensation | The $100,000 cap on cash compensation under the new 24- week covered period will be applied as 24/52. This results in a cap of $46,154 for each employee. The cash compensation for sole proprietors, independent contractors and self-employed individuals is capped at the lesser of 2.5 months of 2019 net profit (2.5/12) or $20,833, under the 24-week covered period.
For borrowers who opt to use the 8-week covered period, the former caps (8/52) apply. |
These changes are particularly significant for businesses that are still under lockdown orders and cannot achieve loan forgiveness within the original 8-week timeframe, as well as for businesses in metropolitan areas with higher-than-average rent expenses who can now use up to 40% of loan proceeds on non-payroll costs.
If you need assistance planning, documenting and applying for maximum PPP loan forgiveness, please contact our Emergency Loan Consultants on Grassi’s Crisis Response and Recovery Hotline at 212.223.6216 or response@grassiadvisors.com.
