Favorable Changes to Paycheck Protection Loans are Here – What Does it Mean?

June 2020 — By Michelle McCullough


The President has officially signed The Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”), a bill that changes several critical terms of the Paycheck Protection Program (PPP). The PPP was the headliner of the CARES Act, a new loan package designed to provide nearly $600 billion in relief for small businesses to use in paying employee wages and other critical expenses over an 8-week period.

Here are 5 Key highlights of the Flexibility Act:

  1. The loan application deadline is extended from June 30 to December 31, 2020. Over $130B remains from the second round of funding.

  2. The loan forgiveness requirements provide more flexibility and increase chances of having a larger portion of the loan forgiven.
    • Borrowers now have an extension of the “covered period” from 8 weeks to the earlier of 24 weeks from loan disbursement or December 31, 2020. Borrowers who have exhausted their entire PPP funds are not required to wait until the 24 weeks have passed to file their forgiveness applications.
    • The threshold requiring 75% of funds to be spent on payroll was lowered to 60%. However, if a borrower fails to spend at least 60% of the loan proceeds on payroll costs, the entire loan amount will NOT be forgiven.
    • The deadline for rehiring workers in order to qualify for safe harbor from the reduction factors was moved from a June 30th deadline to December 31, 2020. As long as the FTEs or salary/hourly wage are restored to February 15th levels any time prior to the end of 2020, no reduction in forgiveness will be required.  This extension also applies to reversing salary cuts greater than 25%.
    • Any positions that were unable to be filled during the period of February 15th and December 31st, 2020 can be excluded from the FTE Reduction Factor calculations by borrowers if businesses could either not find qualified employees to hire, or, could not restore their business to a comparable level of activity due to social distancing or other closures.
  3. The existing 6-month deferral period for payments due on PPP loans was extended until the date on which a borrower submits the forgiveness application to the lender. However, forgiveness applications must be received no later than 10 months after the last day of the covered period.

  4. New loans issued after the Flexibility Act will have an extension of the loan payback period from 2 years to 5 years.  For existing loans, it is up to the borrower and lender to agree to an extension to five years.

  5. Loan forgiveness will no longer disqualify a business from electing to take payroll tax deferrals under the CARES Act. Borrowers may now also defer 2020 Social Security tax incurred between March 27 and December 31, 2020 into 2021 and 2022, even if the PPP loan is forgiven prior to December 31, 2020.