Paycheck Protection Program Flexibility Act Modifies Key Provisions for PPP Loans

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On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 was signed into law following a 417-1 approval vote in the United States House of Representatives and unanimous approval by voice vote in the United States Senate. 

The new law modifies several key provisions concerning loan terms, use of proceeds, and loan forgiveness under the Paycheck Protection Program (“PPP”).  Specific changes include the following:

  • The “covered period” during which PPP borrowers may use funds for qualifying expenses while remaining eligible for loan forgiveness has been extended from eight weeks to 24 weeks from the date loan proceeds are disbursed, provided, however, that the “covered period” cannot extend beyond December 31, 2020.
  • The required percentage of loan proceeds that must be used for “payroll costs” has been reduced from 75% to 60%, meaning that PPP borrowers now have flexibility to use a greater percentage of PPP loan proceeds for rent, utilities or interest payments on qualifying debt. 
  • The deadline to rehire workers has been extended from June 30, 2020 to December 31, 2020.  In addition, the new law also provides certain accommodations to employers who can show in good faith that they were unable to:
    • rehire an individual that was laid off after February 15, 2020;
    • hire similarly qualified employees for unfilled positions, or
    • return to the same level of business activity as existed prior to February 15, 2020 as a result of compliance with U.S. Department of Health and Human Services (HHS), Centers for Disease Control and Prevention (CDC) or Occupational Safety and Health Administration (OSHA) guidance.
  • The minimum maturity for PPP loans has been extended to five years for PPP loans with a remaining balance after forgiveness.  It is important to note, however, that this change only applies to new PPP loans originated on or after June 5, 2020.  The new law permits PPP lenders and borrowers to mutually agree to extend the term of PPP loans made prior to June 5, 2020, but the extension of the maturity date for loans made prior to this date is not automatic.
  • The deferral period for PPP loan payments has also been extended, with PPP borrowers now permitted to defer principal and interest until loan forgiveness is actually finalized. In addition, PPP borrowers who do not apply for forgiveness will have 10 months from the date of program expiration to begin making payments.

Lastly, the new law also eliminates a provision that made PPP borrowers ineligible to defer certain payroll tax payments.  Specifically, the CARES Act allowed employers and self-employed individuals to delay the deposit of the employer-portion of FICA and taxes imposed on self-employment income, respectively, but it also prohibited PPP borrowers from taking advantage of the payroll tax deferral after a PPP loan was forgiven.  Under the new law, PPP borrowers are permitted to take advantage of the payroll tax deferral from March 27, 2020 to December 31, 2020.