Paycheck Protection Program Flexibility Act Favorably Modifies the Terms of Loan Forgiveness

On Friday, June 5th, the President signed the Paycheck Protection Program Flexibility Act of 2020 modifying the terms of the loan forgiveness for a Paycheck Protection Program ("PPP") loan. The amendments are effective as if included in the CARES Act and apply to any PPP loan. There is welcome relief in the Act providing taxpayers greater flexibility in achieving loan forgiveness. The key changes are as follows:

• The term covered period (the period to spend the funds) now means the period beginning on the date of the origination of a covered loan and ending the earlier of the date that is 24 weeks after such date of origination (rather than 8 weeks) or December 31, 2020 (rather than June 30, 2020). Borrowers with existing loans prior to this Act can choose to extend the covered period to 24 weeks or elect to keep the original 8-week period.
• The amount required to be used for payroll costs has been reduced from 75% to 60% of the covered loan amount. A taxpayer may now use up to 40% of the loan amount for any payment of interest on any covered mortgage obligation (which does not include any principal payments), any covered rent obligation, or any covered utility payment. If less than 60% of the funds are used for payroll, then loan forgiveness is reduced proportionately.
• The period during which borrowers are required to re-hire employees or reinstate pay cuts to avoid forgiveness reduction is extended from June 30, 2020 to December 31, 2020.
• The Act also eliminates the proportional reduction of loan forgiveness based on the number of full-time equivalent employees. The loan forgiveness is now determined without regard to a proportional reduction in the number of full-time equivalent employees if an eligible recipient, in good faith is able to document:
• They are unable to rehire former employees or to hire similarly qualified employees for unfilled positions on or before December 31, 2020; OR
• They are unable to return to the same level of business activity as the business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
• New borrowers (those obtaining loans after the passage of this Act) now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
• Businesses that took a PPP loan can now also delay payment of their payroll taxes, which was prohibited under the CARES Act.
• A borrower must request forgiveness no later than the date that is 10 months after the end of its 8-week or 24-week "covered period" for expenditure of loan proceeds.

If you have any questions, please contact your local Rödl & Partner representative.

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