Paycheck Protection Program Flexibility Act (PPPFA) of 2020

Paycheck Protection Program Flexibility Act of 2020

Why the Mixed Up Confusion? Well, More PPP Guidance: Enter the Paycheck Protection Program Flexibility Act (PPPFA) of 2020 (HR 7010)

[Want to listen to Bob Dylan while reading today’s blog post? Listen here.]

President Trump signed the Paycheck Protection Program Flexibility Act (PPPFA) of 2020 into law on June 5, 2020, which then becomes effective on the date of enactment.

The PPPFA makes the following changes to the PPP:

• Time period (covered period) to use the funds for qualified expenses expanded from 8 weeks to 24 weeks
• Borrowing deadline in still June 30, 2020.
• The 75/25 Rule becomes a 60/40 rule with a “cliff”
• The Period for Calculating FTEEs is extended
• New FTEE Exceptions Based on Employee Availability Given Social Distancing/Safety Requirements
• PPP Loan Maturity Date and Deferment Period Extended
• Borrowers Need to Not Wait Too Long to Apply for Forgiveness
• Employer Payroll Tax Deferrals for Two Years

Let’s look at each of these bullet points more closely:

Time period (covered period) to use the funds for qualified expenses expanded from 8 weeks to 24 weeks (CARES Act §1106 as amended by HR 7010, § 3(b)(1))

This change is an expansion of the forgiveness period from 8 weeks (actually 56 days) to the earlier of 24 weeks from the origination date of the loan, or December 31, 2020. A borrower can elect to keep the original 8-week covered period if they wish. (HR 7010, §3(b)(3))

Why would a borrower/employer want to choose the shorter period? Let’s say the employer worked diligently to get employees back to work to meet the FTE salary/employee numbers but is fearful given the slow emergence from the pandemic that a longer covered period might be difficult to maintain employee levels.

Borrowing deadline is still June 30, 2020.

The PPP application deadline is still June 30, 2020, and borrowers have only until then to submit their applications. Nothing in the PPPFA changed this application deadline.

The 75/25 Rule becomes a 60/40 rule with a “cliff” (CARES Act §1106(d)(8) as amended by HR 7010, §3(b)(2)(B))

Under the PPPFA, only 60% of qualified expenses are required to be used for payroll versus the original 75%.  (Borrowers can certainly spend more than 60% on payroll). Because the law states that 60% SHALL be spent on payroll costs and 40% MAY be spent on other qualified expenses, many commenters have concluded this provision to mean that if a borrower doesn’t hit the 60% mark on payroll costs then no loan forgiveness is available.

CARES Act §1106(d)(8) ‘LIMITATION ON FORGIVENESS.—To receive loan forgiveness under this section, an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs, and may use up to 40 percent of such amount for any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), any payment on any covered rent obligation, or any covered utility payment.’

The Period for Calculating FTEEs is extended (CARES Act §1106(d)(7) as amended by HR 7010, §3(b)(2)(B))

The original PPP program under the CARES Act gave employers until June 30, 2020 to restore payroll/employees to pre-February 15 employment levels. The PPPFA extends the period in which borrowers must restore FTEEs or certain salaries (or wages) from June 30, 2020, to December 31, 2020.  This provision, in concert with the 24-week period for incurring qualified expenses eligible for forgiveness, means if a borrower spends 100% of the loan on payroll costs and other eligible expenses during the 24-week period and its FTEE count and certain salaries (or wages) on December 31 equals or exceeds those amounts as of February 15, the borrower’s entire loan amount may be for forgiveness.

New FTEE Exceptions Based on Employee Availability Given Social Distancing/Safety Requirements (CARES Act §1106(d) as amended by HR 7010, §3(b)(2))

The PPPFA includes two new exceptions to the requirement that borrowers must restore their FTEEs to February 15 levels in order to qualify for loan forgiveness.

1. What if the borrower can’t find qualified replacements? This exception could apply when the borrower/employer requires highly skilled or specialized workers or it could also apply to situations where borrowers/employers have a difficult time finding employees due to risks associated with COVID-19 and/or the need for social distancing.
2. The second exception applies when the borrower cannot gets its business operations back up to pre-COVID 19 levels of business activity due to social distancing, etc. as is currently being required of restaurants, such as limiting the number of persons being allowed into an establishment.

We will need more guidance from SBA, but these exceptions appear to create ways for employers not to hire employees back and still qualify for loan forgiveness under the FTE guidelines.

PPP Loan Maturity Date and Deferment Period Extended (HR 7010, §2(a))

The maturity date for any loan amounts after the forgiveness period is now a minimum of five years instead of two and the deferment period is changed from six months to the date the borrower’s loan forgiveness amount is determined by the lender. The 1% interest rate and all other loan terms remain the same.

Borrowers Need to Not Wait Too Long to Apply for Forgiveness

PPPFA §7(a)(36)(M)(iv) of the Small Business Act reads:

(v) RULE OF CONSTRUCTION.—If an eligible recipient fails to apply for forgiveness of a covered loan within 10 months after the last day of the covered period defined in section 1106(a) of the CARES Act, such eligible recipient shall make payments of principal, interest, and fees on such covered loan beginning on the day that is not earlier than the date that is 10 months after the last day of such covered period.

Employer Payroll Tax Deferrals for Two Years (CARES Act Section 2302(a)(3), removed by HR 7010, §4(a))

The legislation also allows PPP borrowers to take advantage of the existing payroll tax deferrals permitted under the CARES Act for businesses not participating in PPP. Originally, PPP eligible payroll expenses could not include any payroll amounts used for payroll tax deferrals under the previous law provisions. PPPFA removes this provision. Borrowers can defer 50% of the employer’s share of payroll taxes until 2021 and the remaining 50% until 2022 but still count those items of payroll as qualified payroll expenses.

Stay Tuned! There are rumblings afoot of more Congressional action to come including perhaps total forgiveness of ALL borrowing. I have heard limitations of anywhere between $150,000 and $1 million. In other words, Congress is talking about anyone who borrowed $1 million or less (I doubt it would be that high; I would bet on $150,000 or less) will be completely forgiven as long as the borrower can certify the funds were used for qualified expenses…

So…all of this time, effort and angst may result in you quoting the famous tag line from Saturday Night Live’s Gilda Radner…”Never Mind”

by Tom O’Saben, EA