The Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010) (PPPFA) was approved by the Senate by a unanimous consent on June 3, 2020. The PPPFA previously passed through the House on May 28, 2020 by a 417-1 vote. The President is expected to sign the bill in the coming days. This eases some of the restrictions in place afforded by the PPP loan many small business owners have taken advantage of. The loan was first introduced as part of the CARES Act, a stimulus package to help Americans during the financial crisis due to the COVID-19 pandemic.
How Does the PPPFA Help Small Business Owners?
The PPPFA modifies provisions related to the forgiveness of loans made to small businesses under the Paycheck Protection Program. Here is the list of the most important provisions:
Before the PPPFA, businesses had eight weeks to utilize the funds they received from the loan. Now, you have a full 24 weeks from the date of the loan, or December 31, 2020, whichever is earlier. With only eight weeks, businesses had to get creative with paying payroll and other business expenses. Now, they have the leeway to pay their employees enough so that the loan can be forgivable. Note: this does not extend the application for the PPP loan. You have until June 30, 2020 to submit your application for the loan.
The 75/25 Restriction has been Changed
Previously, you had to spend at least 75% of the PPP loan proceeds on payroll. This was the only way you could have the loan forgiven. The PPPFA has reduced that number to 60%. Due to shuttered businesses, many of them had to layoff or furlough a number of employees. Ergo, payroll costs are down. However, fixed costs, such as rent, did not go down. It seemed unfair that you had to use so much money towards payroll and not other expenses. Now, you can spend 40% of the funds on those expenses.
Rehiring Employees and Satisfying Payroll Requirements
The PPPFA extends this from June 30, 2020 until the end of the year. The idea is that you have until December 31 to reach the wages of employees to the levels that you had as of February 15. If 100% of proceeds are used for payroll, the entire loan will be forgiven.
Further, the bill extends the period in which an employer may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a paycheck protection loan. However, the forgivable amount must be determined without regard to a reduction in the number of employees if the recipient is (1) unable to rehire former employees and is unable to 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.
Maturity Date and Deferment
The bill establishes a minimum maturity of five years for a paycheck protection loan with a remaining balance after forgiveness. This is up from the current two years. Moreover, the deferment period has been increased from six months to the date the forgiveness amount is figured out. It should be noted that the one percent interest rate for the loan has not changed. Borrowers should look to their lender to see how they are affected by these changes.
Recipients who do not apply for forgiveness shall have 10 months from the program’s expiration to begin making payments.
The CARES Act has allowed for payroll tax deferrals from those who did not utilize the PPP loan. The PPPFA also eliminates a provision that makes a Paycheck Protection loan recipient, who has such indebtedness forgiven, ineligible to defer payroll tax payments. Even if you received a PPP loan, you can now defer the employer part of the payroll taxes: 50% until 2021 and the other 50% until 2022.
PPPFA: Final Thoughts
While there are still questions that the Paycheck Protection Program Flexibility Act of 2020 does not answer, the provisions within are great news for small business owners. Extending the covered period and lowering the percentage you must use on strictly payroll are huge. This will allow more businesses to not only take care of their employees, but other business costs as well. Small businesses are the heart of the American economy. COVID-19 has done a number on everyone, and it has been important the government does all it can to help out.