On June 4, 2020, Congress passed a much anticipated amendment to the Paycheck Protection Program (“PPP”). Importantly, the PPP Flexibility Act relaxes a number of the requirements making it easier for employers to qualify for loan forgiveness.
Eight Week Loan Period Extended to Twenty-Four Weeks
The PPP Flexibility Act now provides borrowers with up to 24 weeks after the loan originates to spend the loan proceeds on eligible costs. Borrowers can still apply for forgiveness after the original 8 week period. This amendment merely gives borrowers who have not yet completed the original 8 week period the ability to spread out the expenditures and also provides relief to those borrowers who were not able to spend all of the proceeds within the original 8 week loan period.
Amount of Loan that Must be Used for Payroll Costs Reduced from 75% to 60%
Importantly, borrowers now need only spend at least 60% of the loan proceeds on eligible payroll costs. Notably, this amendment converted the threshold to a “cliff”, meaning that none of the loan can be forgiven if a borrower fails to meet the 60% threshold. There is already discussion that Congress may amend the cliff to allow for partial forgiveness if the 60% threshold is not met.
Extension of the Rehiring Safe Harbor from June 30, 2020 to December 31, 2020
In addition to spending a certain percentage (now 60%) on eligible payroll costs, borrowers must also maintain headcount in order to qualify for full loan forgiveness. Prior to the latest amendment, borrowers were allowed to satisfy the headcount requirement by rehiring employees by June 30, 2020. Congress has now extended this safe harbor, giving borrowers until December 31, 2020 to rehire employees to satisfy the headcount requirement.
Forgiveness Available If Headcount Reduction Caused by Difficulty in Rehiring
Even more helpful, the headcount requirement will not be taken into consideration in terms of loan forgiveness if the borrower can document in good faith that the borrower was unable to return to the same headcount due to compliance with public health guidance such as social distancing and workplace safety requirements. Borrowers may also be able to avoid the need to satisfy the headcount requirement if the borrower can demonstrate an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
Loan Deferral and Repayment Period Extended
In the event a borrower is unable to qualify for full forgiveness, the PPP Flexibility Act now provides up to 11 months before the loan payments start. In addition, borrowers may pay back the loan over a five year period rather than a two year period.
Deferral of Payroll Taxes Allowed Without Losing Loan Forgiveness Eligibility
Finally, the changes permit participants in the PPP to defer payroll taxes as provided for in the original CARES Act, which previously excluded any borrowers who had loans forgiven under the PPP.