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Paycheck Protection Program Flexibility Act

June 4, 2020

On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act (PPPFA) which aims to provide relief to businesses which may have had concerns surrounding the requirements to receive forgiveness for their Paycheck Protection Program (PPP) loans. This legislation was pushed through the House and Senate just as the initial 8-week coverage window expired for the first recipients of PPP loans. This 8-week window in which loan funds must be used was one of the main concerns voiced by borrowers prior to the PPPFA.

For your convenience, our experts have summarized the main provisions laid out by this legislation below:

  • Current PPP borrowers are given the option to keep the original 8-week covered period or can use a newly introduced 24-week covered period in which to use their loan funds. New PPP borrowers will automatically be given a 24-week covered period, but the covered period cannot extend beyond December 31, 2020. This expanded covered period should make it much easier for borrowers to achieve full forgiveness.
  • The payroll expenditure requirement drops to 60% from 75%, but is now a cliff. This means borrowers must spend at least 60% on payroll or none of the loan will be forgiven. PPP recipients can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels (but must do so by December 31st, 2020).
  • There are two new exceptions which allow borrowers to achieve 100% PPP loan forgiveness even if they don’t fully restore their workforce. The new legislation will not penalize borrowers if they have workforce reductions because they either could not find qualified employees or were unable to restore business operations levels due to compliance with health and safety requirements or guidance related to COVID-19.
  • New PPP recipients have 5 years to repay their loan amount (as opposed to the 2-year loan term in previous legislation). This 5-year loan term will only be applicable to loans which are applied for after the date the new legislation was passed. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
  • Borrowers that do not have all of their loan forgiven will be able to defer payment of principal, interest and fees until the date on which forgiveness is determined (as opposed to 6 months in previous legislation).
  • The new legislation allows businesses that have a PPP loan to delay payment of their payroll taxes which was prohibited under previous CARES Act legislation.

Additional guidance will be necessary to address new questions created as a result of this legislation, but the PPPFA should provide much needed relief to those businesses that are concerned about limitations and constraints that existed with previous PPP legislation.

As always, our team is here to help you understand these new guidelines and make the right decisions for your organization. If you have any questions regarding this new legislation or how it may affect your loan, please reach out to us today.

For additional updates regarding the COVID-19 pandemic and other industry resources, please visit out AEM COVID-19 Resource Center.

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