Paycheck Protection Program Flexibility Act Makes Important Changes to the Loan Program
On June 5, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (“PPP Flexibility Act”). Though several Senators had raised concerns about the House bill, ultimately the Senate passed the House version with no changes, avoiding negotiations on a final bill.
The PPP Flexibility Act makes several adjustments to the PPP:
- Increases the length of time that borrowers can spend PPP funds and still qualify for loan forgiveness (the “covered period” for forgiveness) from eight weeks to 24 weeks or ending December 31, 2020, whichever is earlier; and provides borrowers the option to use the original eight-week period.
- Reduces the percentage of loan funds that must be spent on payroll expenses to qualify for loan forgiveness from 75% to 60%, a change which also increases the percentage of loan funds that can be used for the nonpayroll expenses of rent, mortgage interest and utilities from 25% to 40%.
- Allows small businesses that receive PPP loan forgiveness to defer their payroll taxes.
- Provides loan forgiveness even if a small business is unable to rehire employees and/or similarly qualified employees, or if the business can demonstrate that it is unable to operate at the same level of business activity as before February 15, 2020, due to compliance with safety measures.
- Imposes a deadline for forgiveness applications, requiring borrowers to apply for forgiveness within ten months of the end of the covered period for forgiveness.
- Provides that the minimum maturity for any unforgiven portion of a PPP loan is five years (for loans made after enactment of the PPP Flexibility Act).
The PPP Flexibility Act did not address a number of concerns that had been raised about loan forgiveness. For instance, the Act does not reverse the IRS’s position that payroll and other expenses funded by a forgiven PPP loan are not deductible. See our discussion of the IRS guidance and earlier statements by members of Congress here.
We anticipate that Treasury and the Small Business Administration will issue updated guidance and a revised application for loan forgiveness. We continue to monitor these developments.
Please visit our Coronavirus: Preparation & Response series for additional resources we hope will be helpful.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.