What You Need to Know Now and Later: Paycheck Protection Program Flexibility Act

For many businesses, it seems as though every time they blink there’s another Paycheck Protection Program (PPP) update to digest.  It’s a reality that accompanies the quick development and release of the Small Business Administration’s (SBA) program for economic relief due to COVID-19.  The need for updates soon becomes apparent when ‘gray areas’ require clarifications for businesses to navigate eligibility, applications, and reporting guidelines. Here we are in June of 2020, and the President has signed the new PPP Flexibility Act to allow borrowers more time to spend loan funds and still obtain forgiveness.  Just two days later, the SBA and Treasury issued a press release already promising to update existing regulations and applications.

Here’s really all you need to know about the effects that stem from the release of PPP Flexibility Act’s (PPPFA) new guidelines that extend PPP benefits to participating businesses:

Highlights of PPP Flexibility Act (as of today)

• Final opportunity to apply for a PPP loan is now June 30, 2020
• Extension to 24 weeks (versus the previous eight weeks) to spend proceeds on labor, interest, rents, utilities

PPPFA adjustments include:

• New Payroll Tax Deferral Eligibility
• Extended Time Frames
• Forgiveness Application Changes
• Forbearance Changes

New Payroll Tax Deferral Eligibility:

• Old law: PPP recipients could defer their 6.2% share of social security taxes only through the date their lender issued a forgiveness determination, and had to resume regular deposits immediately following.
• New law: All employers are eligible to defer their share of social security taxes through the end of 2020, even if they receive PPP forgiveness.

Extended Time Frames:

• Loan terms
  • Old law: minimum loan term was two years
  • New law: minimum loan term is five years for loans approved by SBA after June 5; lenders and borrowers with pre-June 5 loans can renegotiate the loan term to five years if desired
• Covered period
  • Covered period means the time available to spend PPP funds
  • Old law: June 30
  • New law: December 31
  • Borrower’s PPP Covered Period
    • Meaning, time an individual borrower has to spend PPP funds
    • Old law: 8 weeks
    • New law: 24 weeks
      • Borrowers with loans issued before June 5 can elect to use the original 8-week period instead.
      • Borrowers with loans issued after June 5 cannot elect a shorter period.

Forgiveness Changes:

• New safe harbor: a borrower is exempt from a reduction in forgiveness due to FTE changes if they can document in good faith that:
  • They are unable to rehire individuals who were employees on February 15, and
  • They are unable to rehire similarly qualified individuals by December 31.
• New safe harbor: a borrower is exempt from a reduction in forgiveness due to FTE changes if the borrower is unable to return to pre-COVID production levels due to new federal government safety standards
• New required payroll costs level: a borrower must spend 60% of forgiveness amount on payroll costs, and can spend up to 40% of forgiveness amount on non-payroll forgivable costs.
• Deadline for forgiveness application: the application is due ten months after the end of the borrower’s covered period.

Forgiveness Application Changes

• New “EZ” application is available, if the borrower meets one of three qualifications:
  1. The borrower is a self-employed individual with no employees,
  2. The borrower did not reduce employee salaries and did not experience an FTE reduction, or
  3. The borrower did not reduce employee salaries and is unable to return to pre-COVID business levels by December 31 due to new governmental safety requirements.
• EZ Application guidelines:
  • No Schedule A or individual employee information is required
  • Borrower must provide additional certifications that:
    • The borrower did not reduce hours or wages of employees during the covered period,
    • The borrower has submitted all required documents to the lender verifying all eligible expenses, and
    • At least one of the following:
      • The borrower did not reduce FTEs or employees’ hours, or
      • The borrower was unable to operate between February 15 and the end of the covered period at the same level of business activity due to compliance with new governmental safety requirements.
  • Simplified documentation for payroll costs: need to provide only proof of total compensation payments, instead of employee-by-employee data.
    • All other documentation remains the same.
    • Documents used to calculate FTEs, wages, and other figures used on the forgiveness application must be retained in the event the SBA requests it.

Forbearance Changes:

• No payments are due until the SBA sends the approved forgiveness amount to the lender.
• If a borrower does not submit a forgiveness application, payments may be due no earlier than ten months after the end of the borrower’s covered period.

Any More Changes to Come?

Yes, we do expect additional guidance to be released in the form of Interim Final Rules (IFRs) and Frequently Asked Questions (FAQs) to be released by the SBA, with the intent to provide greater clarity on other areas raising questions and concerns.  In addition, there will be a modified loan forgiveness application to be issued by the Treasury and SBA, as well as the due date extension for the forgiveness application.

Should you have questions regarding PPP, the Flexibility Act, or loan forgiveness applicability and reporting, contact a K·Coe advisor.

Register to attend our upcoming webinar with a live Q&A session on the Paycheck Protection Program (PPP) Forgiveness application and instructions.  Join Beth Swanson, JD and Kala Jenkins as they share updates and expertise on Wednesday, Jun 24, 2020 1:30 PM – 2:00 PM CDT. 

Click here to register for our webinar.