Changes Made by the PPP Flexibility Act

Earlier today the PPP Flexibility Act was signed into law, bringing about several key changes to the PPP’s forgiveness feature. 

Further guidance is expected from the SBA and Treasury Department to implement these changes, which include:

Extension of Covered Period

The new covered period begins on the date of the loan origination and ends 24 weeks from origination or on December 31, 2020, whichever is earlier. Borrowers can elect to accept the original 8-week covered period from date of the loan.

Modified Percentage of Use of PPP Loan for Forgiveness

The original rule was 75% for payroll and 25% for permitted rent, utilities, and interest on qualified mortgage obligations.

The Flexibility Act states that to be eligible for PPP loan forgiveness, the borrower must use at least 60% of the loan amount for payroll costs, and may use up to 40% for permitted rent, utilities, and interest on qualified mortgage obligations.  

Borrowers can elect to use the original 75% / 25% rule along with the original 8-week covered period.

Full-Time Equivalent Safe Harbor Date

The Flexibility Act changes the date by which employees must be rehired to achieve maximum forgiveness from June 30, 2020 to December 31, 2020.

Full-Time Equivalent Exceptions

Employees who are fired for cause or voluntarily resigned were exceptions to the full time equivalent calculation. 

The Flexibility Act adds exceptions when employees are not available or the business is unable to restore operations.

Loan Term

PPP loan repayment period is extended from two years to five years; the interest rate remains 1.0%.

Extended Deferral Period

The current six month deferral period is modified to allow for the deferral of all payment of principal, interest and fees until the date on which the forgiven amount is remitted to the lender by the SBA.

Deferral of Payroll Taxes

The Flexibility Act allows employers to take advantage of the CARES Act deferral of employer portion (6.2%) of social security payroll taxes, regardless of whether the employer had a PPP loan forgiven.

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