CARES Act Modifications by the Paycheck Protection Program Flexibility Act
As part of the U.S. Government’s response to the economic consequences arising from COVID-19 pandemic, the Paycheck Protection Program (PPP) loan was created under the Coronavirus Aid, Relief and Economic Security Act (CARES Act). Restrictions imposed by the Small Business Administration (SBA) provided inflexibility which has caused many small businesses to question the desirability of the loan. In response, the U.S. Government enacted the Paycheck Protection Program Flexibility Act (PPPFA).
The PPPFA modifies provisions pertaining to loan forgiveness in Section 1102 of the CARES Act. A summary of the modifications are as follows:
|Original Terms||PPPFA's New Terms|
|Application deadline for PPP loan June 30, 2020.||Application deadline for the PPP loan is extended to December 31, 2020. Note, however, covered period is limited to the “earlier of” rule.|
|Maturity period: 2 years.||Expanded to a minimum maturity period of 5 years. Note, this is for loans made on or after the PPPFA's enactment but borrowers and lenders may modify maturity terms for PPP loans made before enactment.|
|Deferral period: 6-months.||Deferral period increased to 10-month for those who do not receive loan forgiveness and for those who do receive forgiveness, deferral until borrower receives compensation for forgiveness. Note, the extension applies to all PPP loan, whether or not received/applied for on or after the PPPFA's enactment.|
|75% of the loan proceeds must be used for payroll costs.||60% of the loan proceeds must be used for payroll costs, i.e. borrower may use up to 40% for other covered obligations.|
|Covered period: 8 weeks.||Covered period ends on the earlier of 24 weeks or December 31, 2020. Borrowers who received the PPP loan before the PPPFA's enactment can election to use the original 8 week covered period.|
|Deadline to rehire or reverse salary cuts June 30, 2020.||Ability to rehire and reverse salary cuts extended to December 31, 2020; further to help with concerns on loan forgiveness reduction, the forgivable amount would be determined without regard to a reduction in the number of employees if the recipient is, in good faith, able to document that from February 15, 2020 to December 31, 2020, the borrower was: (1) unable to rehire former employees and is unable to hire similarly qualified employees; or (2) unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19.|
|If loan is forgiven, ineligible for payroll tax deferral.||Eliminates this ineligibility.|
The text of the Bill can be found at the following link: https://www.congress.gov/bill/116th-congress/house-bill/7010/text?q=%7B%22search%22%3A%5B%22Paycheck+Protection+Program+Flexibility+Act%22%5D%7D&r=2&s=2.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.