How the PPP Flexibility Act changes PPP rules

Editor’s note: Regulations and guidance from the SBA and the U.S. Department of the Treasury on the PPP are evolving rapidly and the below information may be outdated. Please refer to the latest guidance from the Small Business Administration and the U.S. Department of the Treasury to confirm current program rules.

The Paycheck Protection Program Flexibility Act (PPPFA) addresses many of the concerns voiced by U.S. small businesses around Paycheck Protection Program (PPP) loan forgiveness. The new law, signed by the president on June 5, attempts to ease the burden placed on businesses that have received PPP loans.

1. The PPP Flexibility Act reduces the amount of funds required to be spent on eligible payroll costs from 75% to 60%.

Before the Flexibility Act was signed, business owners planning to apply for PPP loan forgiveness had to spend at least 75% of their PPP loans on eligible payroll costs to be eligible for loan forgiveness. No more than 25% could be spent on other eligible non-payroll expenses.

The PPPFA reduces the percentage of funds business owners are required to spend on eligible payroll costs in order to be forgivable. Under the PPPFA, business owners may still qualify for loan forgiveness, in part or in full, if they spend at least 60% of their PPP funds on eligible payroll costs and meet certain other requirements.

To receive full loan forgiveness, a borrower must use at least 60 percent of the PPP loan for payroll costs, and not more than 40 percent for non-payroll costs. The new law does not change the list of eligible expenses .

2. The PPP Flexibility Act increases the covered period from 8 weeks to 24 weeks.

The PPP originally required business owners to spend PPP funds within an 8-week covered period to qualify for loan forgiveness. Any funds spent after the 8-week covered period would have to be repaid.

The PPPFA extends the covered period from 8 weeks to 24 weeks, which gives some small business owners until the end of 2020 to use PPP funds.

For loans made on or after June 5, 2020, your loan forgiveness covered period is 24 weeks. For loans made before June 5, 2020, you can choose to use either an 8-week or 24-week loan forgiveness covered period. You don’t have to use all your loan proceeds during the loan forgiveness covered period, but only eligible costs paid during the period (and certain eligible costs incurred by not paid during that period) are eligible for forgiveness. Costs incurred after the loan forgiveness covered period won’t be forgiven.

Solely for the purpose of calculating payroll (and certain required reductions), if you are a borrower with a biweekly or more frequent payroll schedule, you may choose an “alternative payroll covered period” that aligns with your payroll cycle. The alternative payroll covered period begins on the first day of the first pay period following receipt of your PPP funds.

For example, if you received your PPP funds on Monday, April 20, and the first day of your first pay period following receipt of your PPP funds is Sunday, April 26, the first day of the alternative payroll covered period is April 26. If you choose to use this alternative period, it applies only to payroll costs and certain required reductions.

3. The PPP Flexibility Act extends the deadline to rehire employees.

Under the PPP, business owners needed to hire back any laid-off workers before June 30 to avoid a reduction in their potential loan forgiveness amount. Many didn’t have enough work for these employees to do while others struggled to rehire former employees.

The loan forgiveness amount may still be reduced if the average weekly number of full-time employees during your loan forgiveness period is less than the average weekly number of full-time employees during either Feb. 15, 2019 and June 30, 2019 or Jan. 1, 2020 and Feb. 29, 2020.

The PPPFA provides additional rehiring guidelines. Your loan forgiveness amount will not be reduced based on headcount reductions if either:

1. Reductions made between February 15, 2020 and April 26, 2020 are reversed by the earlier of (i) the date you submit your application for loan forgiveness or (ii) December 31, 2020, or
2. Your business was unable to operate between February 15, 2020 and the end of your Loan Forgiveness Covered Period at the same level as before February 1, 2020, due to compliance with certain federal requirements or guidance issued between March 1, 2020 and December 31, 2020 related to maintaining standards of sanitation, social distancing, or other work or customer safety requirements related to COVID-19.

4. The PPP Flexibility Act extends the PPP loan repayment term from 2 years to 5 years.

Originally, any PPP funding that was not forgiven was required to be repaid to the lender within 2 years at a 1% interest rate.

Under the PPPFA, the PPP loan repayment term has been extended to 5 years for loans made on or after June 5, 2020. For loans made before June 5, 2020, the maturity is still 2 years but borrowers may be able to work with their lender to extend the maturity of the loan to 5 years. The 1% interest rate for PPP loans stays the same.

The lender has 60 days of receipt of a complete loan forgiveness application to make a forgiveness decision. If the lender determines that the borrower is entitled to forgiveness of some or all of the amount the lender must request payment from the SBA. The SBA has 90 days to review the application and remit the appropriate amount to the lender, plus any interest accrued through the date of payment.

If a borrower submits a loan forgiveness application to their lender within 10 months after the end of their loan forgiveness covered period, they will not have to make any loan principal or interest payments on the loan before the SBA remits the loan forgiveness amount on the loan to the lender, or notifies the lender that no loan forgiveness is allowed. If a borrower does not apply for forgiveness within 10 months after the last day of their loan forgiveness covered period, the borrower must start repaying the loan on that date.

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Regulations and guidance on the PPP are evolving rapidly, so the information in this article may be outdated. Please refer to the latest guidance from SBA and U.S. Department of the Treasury to confirm current program rules and how they apply to your particular situation.

The resources described above are made available to businesses within the United States of America.

Given the large demand for additional authorized Paycheck Protection Program funds, not every qualified Paycheck Protection Program applicant will receive a loan.