New Rules for Forgiveness in Paycheck Protection Program Reform Bill

By Gordon W. Prince, Esq.

The Paycheck Protection Program Flexibility Act of 2020, a bill that focuses on easing restrictions on small businesses who will be seeking to have their PPP loans forgiven, has been signed into law by the President. PPP loan borrowers should breathe a sigh of relief as this new Act comes on the heels of the Department of Treasury’s Interim Final Rules, which many critiqued as making the PPP loan forgiveness process overly complex and harsh.

The key highlights to this new Act are as follows:

1) The bill reduces the amount of the loan required to be spent on payroll, in order to obtain forgiveness, from 75% to 60%. In other words, the threshold for the amount of PPP funds required to be spent on payroll costs in order to qualify for ANY forgiveness is now 60% of the loan amount. PPP recipients can now use 40%, as opposed to 25%, on other expenses such as rent, mortgage payments, utilities, and interest on loans without jeopardizing their forgiveness.

2) The covered period, the period of time PPP recipients have to spend the proceeds on allowable uses of the loan, is extended from 8 weeks to 24 weeks. Recipients who received their loan prior to this new Act can elect to have the original 8 week period apply in lieu of the 24 week period.

3) The maturity date of the loan amount that is not forgiven, and is therefore repayable, is extended from 2 years to 5 years, maintaining the 1% interest rate.

4) The CARES Act contains a provision that generally reduces forgiveness in proportion to the reduction of the loan recipient’s workforce. The recipient can avoid this reduction by restoring their workforce, and the covered period for forgiveness based upon restoring their workforce (i.e. rehiring employees and restoring wages) has been extended from 8 weeks to 24 weeks, or December 31, 2020, whichever is earlier.

5) A new exemption based on employee availability during this time was added. The amount of loan forgiveness will be determined, without being proportionally reduced by the number of full-time equivalent employees, if the recipient, in good faith, documents:

(i) an inability to rehire individuals who were employees of the borrower on February 15, 2020; and

(ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020;

OR

(iii) The borrower, in good faith, “is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.”

6) The ability of recipients to delay the payment of employer payroll taxes.

It can be expected that the Department of Treasury and SBA will issue new guidance on PPP loans based upon this new Act in the coming weeks.