Late yesterday, the Senate passed the House version of the Paycheck Protection Flexibility Act (“PPFA”), adjusting some of the rules under the Paycheck Protection Program (“PPP”). The bill will now go to President Trump, who is expected to sign it. Like much of the guidance that has been issued by the Treasury since the PPP was originally enacted, this bill is a further relaxing of the PPP rules, permitting more borrowers the opportunity to secure PPP loan forgiveness.
Below are some of the key provisions of the legislation:
- The covered period (the timeframe for the borrower to pay or incur forgivable PPP loan expenses) has been extended to the earlier of 24 weeks or December 31, 2020. Pre-PPFA borrowers can choose to retain the original eight (8) week period.
- With regard to the reduction in forgiveness due to the reduction in full time equivalent (“FTE”) employees, there are additional exceptions not previously discussed in the law or Treasury guidance. There are exceptions to the FTE reduction calculation if the borrower can document in good faith that: (1) the business could not rehire terminated employees and find qualified employees for unfilled positions by December 31, 2020 or (2) the business was unable to restore business operations to February 15, 2020 levels due to COVID-19 related operating and compliance safety standards.
- The payroll cost requirement was lowered from 75% to 60%. Based on our reading of the law, the 60% is the minimum amount that must be spent on payroll costs, otherwise there would be no loan forgiveness.
- With regard to loan forgiveness reductions, the deadline for rehiring has been changed from June 30, 2020 to December 31, 2020.
- Borrowers are permitted to defer the payment of 2020 employer payroll taxes until December 31, 2021 (50%) and December 31, 2022 (50%).
- The loan is deferred until the date on which the amount of forgiveness determined under the CARES Act is remitted to the lender. Originally, the period was six (6) months. If the borrower fails to apply for forgiveness within 10 months after the covered period as described above, then the borrower will begin to make payments at that point.
- The term of all PPP loans issued after the date of enactment of the PPFA (the date President Trump signs the bill into law) shall be a minimum of five (5) years and not the current two (2) years. The interest rate remains at 1%. Lenders are not prohibited from modifying loans made prior to the date of PPFA enactment to a five-year term instead of their current two-year term.
Generally, this means that almost all that received the loan will receive full forgiveness if the forgiveness application is properly submitted to the lender. There will most likely be cases where all is not forgiven, but most should receive full forgiveness.
From this point, there are still some unanswered questions and we find ourselves in a familiar spot regarding the PPP: waiting on guidance. Some of the questions are:
- Was the “cliff” effect of not spending 60% of PPP loan funds on payroll costs resulting in no loan forgiveness an intended consequence or the result of rushed legislation?
- Will an updated loan forgiveness application be issued, or will we have to work with the application that is currently in existence?
- Does the extension of the covered period to 24 weeks also increase the forgivable, per-employee wage amount to $46,154 from $15,385? We believe it should be increased.
- Will the expenses related to loan forgiveness be tax deductible? This was not discussed in the PPFA.
Once we see how this unfolds over the next few days, we will update our forgiveness workbook and make it available.
Thank you for your time and please let us know if we can be of assistance.