Congress makes PPP forgiveness easier to obtain in passing the PPP Flexibility Act
By: Justin Boron
You just got a reprieve on your forgiveness.
In passing an amendment to the Paycheck Protection Program on Wednesday evening, Congress—among other changes it made to the PPP—extended the period to spend forgivable loan money from eight weeks to 24 weeks.
The PPP Flexibility Act—which passed by unanimous consent in the Senate and 417-1 in the House—became law upon the president’s signature Friday and aims to resolve several of the problems that have emerged during the PPP’s implementation through the SBA and private lenders.
In addition to the extension of time to spend the PPP loan proceeds, the PPP Flexibility Act makes several other changes that will give borrowers more flexibility to ensure 100 percent forgiveness of their PPP loans:
- Reducing the amount of payroll costs required from 75 percent to 60 percent. This will allow borrowers to spend more on forgivable, non-payroll costs, i.e. certain payments on rent, utilities, and mortgage interest. However, a question remains about the consequences of failing to meet the 60 percent threshold: Is forgiveness reduced proportionally or is it an “all-or-nothing” requirement? Based on floor speeches for the bill, we expect the SBA to issue guidance allowing for a sliding scale on forgiveness.
- Extending the period of time to restore workforce and wage levels. This will give employers more time to re-constitute their workforces without sustaining a reduction in forgiveness.
- Formalizing exceptions to reductions in forgiveness. The SBA’s guidance allowed borrowers to avoid reductions for employees who turned down good faith written offers to be re-hired or recalled. Additionally, the bill allows borrowers to avoid forgiveness if they could not find qualified employees or were unable to restore business operations due to COVID-19 related operating restrictions.
- Increase the payback period from 2 to 5 years. The SBA set the maturity date on the loans for two years. Congress elevated the minimum to five years, so PPP lenders will have to adjust the maturity date on the notes for PPP loans accordingly. That means any unforgiven loan amount could be repaid over five years. The interest rate remains at 1%.
- Extending payroll tax deferral to PPP borrowers. PPP borrowers were excluded from the payroll tax deferral under the original CARES Act legislation, but the new bill affords them that option as well. That means PPP borrowers may also defer certain payroll taxes—i.e. the employer portion of the social security tax—from March 27, 2020 through December 31, 2020. Fifty percent of the deferred tax would be due by December 31, 2021, and the remainder would be due by December 31, 2022.
If you have questions or would like more information, please contact Justin Boron at email@example.com.