PASSED: Paycheck Protection Flexibility Act of 2020

On Wednesday night, the Senate unanimously approved and passed House Bill 7010, which brings favorable changes in several critical areas of the Paycheck Protection Program.  This bill provides for much needed relief on qualifying for forgiveness of the loans.  These are important changes, as many borrowers were quickly approaching their eight-week window to apply for forgiveness.  

Following is a summary of the legislation’s key points:

Flexibility on Covered Period: Existing borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New borrowers will have a 24-week covered period, but the covered period cannot extend beyond December 31, 2020.

Payroll Expenditures:  The requirement of how much the borrower has to spend on payroll drops to 60% from 75%.  However, under the new requirement borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness is not eliminated if the 75% threshold is not met. Note: There will likely be further tweaks to clarify this.  Rep. Chip Roy (Texas), who co-sponsored the bill in the House, said in a House speech that the bill intended the sliding scale to remain in effect at 60%. Senators Marco Rubio and Susan Collins indicated that technical tweaks could be made to the bill to restore the sliding scale.

Restoring Workforce: Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by December 31, a change from the previous deadline of June 30.

Two New Exemptions on Restoring Workforce: There are two new exceptions allowing borrowers to achieve full loan forgiveness, even if they don’t fully restore their workforce. Previously, borrowers were allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to February 15, 2020, levels due to COVID-19 related operating restrictions.

Extended Repayment Terms:  New borrowers now have five years to repay the loan instead of two. Current borrowers can extend their loan repayment to up to 5 years, if the lender and borrower agree. The interest rate remains at 1%.

Deferral on Payment of Payroll Taxes Permitted: The bill now allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was previously prohibited. Note:  The decision to defer payment on payroll taxes should be carefully weighed, as it could create substantial hardship in the future and bear the risk of potentially significant penalties if not paid by imposed deadlines.

Click here for the Paycheck Protection Flexibility Act of 2020.

Again, this new guidance brings both opportunities and challenges that must be considered and many questions still remain. There is already talk of more clarification and guidance needed. Just two weeks ago, it was rumored that the SBA was releasing an additional 30 FAQs that would provide much needed guidance.  Those have yet to be released presumably to wait and see what was ultimately going to pass with the wheels in motion in the House and Senate. Most likely those FAQs, and more, will be forthcoming. We will keep you posted.

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