Congress Passes PPP Flexibility Act, Easing Restrictions

On Wednesday night the Senate passed the “Paycheck Protection Program Flexibility Act” (the Act) which now goes to the President’s desk for signature after the House approved last week. The law attempts to ease restrictions on small businesses as they seek loan forgiveness under the Paycheck Protection Program authorized by the CARES Act.

The Act:

Reduces the amount of the loan required to be spent on payroll from 75% to 60%, thus increasing the amount of funds available for other expenses from 25% to 40%. These expenses still include rent, mortgage payments, utilities, and interest on loans.  Note that this change means that if a PPP loan recipient does not meet the 60% payroll requirement, none of the loan will be forgiven.

Extends the window businesses have to use the funds from eight weeks to 24 weeks.  Any borrower who received a loan before the law’s enactment can elect to use the original eight-week covered period.

Extends the June 30 deadline to rehire workers to December 31, 2020.

Removes the CARES Act provision restricting employers who receive PPP loan forgiveness from deferring payroll taxes incurred between March 27, 2020 and December 31, 2020.

Extends the minimum loan term to five years, enlarging the two-year maturity date imposed by the SBA. This amendment to the PPP would take effect on the date of the law’s enactment and apply to any PPP loan made on or after such a date. Lenders and borrowers are not prohibited from mutually agreeing to modify the maturity terms of prior-disbursed PPP loans.

Eliminates the six-month deferral of payments due under CARES Act and replaces it with a deferral until the date on which the amount of loan forgiveness is remitted to the lender. If a borrower fails to apply for loan forgiveness within 10 months after the last day of the covered period for PPP loan forgiveness, the borrower must begin to make payments of principal and interest.

While the Act addresses many of the concerns expressed by small business since the passing of the CARES Act and the subsequent draconian guidance from Treasury and the SBA , the requirement to spend at least 60%  of loan proceeds on payroll  vs. the current partial forgiveness calculation could be problematic for some recipients.  Republican Sen. Marco Rubio of Florida, who chairs the Senate Committee on Small Business and Entrepreneurship was quoted “people need to know that the way the Treasury has told us they are going to interpret that bill — if you don’t spend 60% of your money on payroll, if you only spend 59.9%, you will get zero forgiveness.”

This bill did not address the IRS decision that denied taxpayer’s ability to deduct expenses paid for by PPP funds.

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