Congress Revises Payroll Protection Program

New law eases requirements for borrowers

Bowing to pressure from various industry groups, Congress has just passed the Paycheck Protection Program Flexibility Act (PPPFA), easing many of the rules under the Paycheck Protection Program (PPP). The new federal legislation was signed into law by the president on June 5, 2020.

Background: The PPPFA significantly updates the PPP created by the Coronavirus Aid, Relief and Economic Security (CARES) Act. The PPP, one of the pillars of the CARES Act, allows qualified small businesses with 500 or fewer employees to obtain loans that may be fully or partially forgiven if certain conditions are met.

The revised rules are generally favorable to borrowers. Following are some of the most important changes included in the PPPFA.

·         Previously, borrowers were required to use at least 75% of the loan proceeds for qualified payroll costs to qualify for loan forgiveness. Now the new law lowers the threshold for payroll costs to 60%. But note that the previous rules requiring loan proceeds to be used only for payroll costs, mortgage interest, rent and utilities remain in place.

·         Under the CARES Act, forgiveness of PPP loans depended on the use of loan proceeds over the eight weeks following receipt of the funds. The PPPFA extends this eight-week period to the earlier of 24 weeks or December 31, 2020. A borrower who received money before the PPPFA’s date of enactment can elect to still rely on the eight-week period.

·         The new law extends the due date for repaying PPP loans that are not forgiven from two years to a minimum of five years. This provision applies to borrowers who receive PPP funds after the new law’s date of enactment. For prior loans, lenders and borrowers are free to work out their own agreements.

·         The CARES Act allows employers to postpone full payment of the 6.2% Social Security tax portion of payroll taxes, taking up to two years, if they are not having PPP loans forgiven. Similar rules applied to self-employed individuals. The new law removes this ban for PPP borrowers.

·         Loan forgiveness is still based on retention of full-time equivalent employees (FTEs) as compared to prior staffing levels. But the new law extends the safe-harbor deadline for rehiring workers from June 30, 2020, to December 31, 2020. Borrowers who bring back furloughed or laid-off workers in time will not be subject to a reduction in loan forgiveness.

·         Finally, the loan forgiveness amount will not be based on a lower FTE number if the borrower demonstrates that it qualifies under either one of these two new exemptions:

1.      It was unable to rehire workers who were employed on February 15, 2020 and is unable to hire similar workers by December 31, 2020.

2.      It is unable to return to the same level of business activity that existed prior to February 15, 2020 due to conditions such as social distancing, sanitation and/or worker or customer safety procedures

In summary: This is just a brief overview of some of the key provisions in the PPPFA. The IRS is expected to issue additional guidance in the near future. Consult with your professional business advisors concerning your situation.