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Two months after the Paycheck Protection Program (PPP) was established, Congress is making changes. Congress has passed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA). The changes contained within the PPPFA should provide more flexibility to businesses to fully utilize their PPP funds which will increase the likelihood of the PPP loan being forgiven. Highlights of the PPPFA are:

  • Increases the forgiveness covered period for which the loan proceeds can be used from 8 weeks to the earlier of 24 weeks from date of disbursement of the loan or December 31, 2020.
  • Extends the time period from June 30, 2020 to December 31, 2020 to meet the full time equivalent (FTE) or salary/wage restoration safe harbors to avoid having the amount of the loan forgiveness reduced.
  • PPPFA added two additional exceptions to including employees in FTE and salary/wage reduction calculations for the amount of loan forgiveness. First, if there is an inability to rehire employees that were employed on February 15, 2020 or hire similarly qualified employees on or before December 31, 2020, they will not be included in the calculations. The second exception is related to the inability to return to the level of business as before February 15, 2020 due to requirements established by certain government agencies related to social distancing, maintenance standards for sanitation or other worker safety requirements.
  • Codifies the requirements for eligibility for loan forgiveness. PPPFA states that at least 60% of the covered loan amount must be used for payroll costs and up to 40% of the covered loan may be used for the payment of interest on any covered mortgage obligations, rent obligation or utility payment. The Small Business Administration (SBA) had previously stated that at least 75% of the amount forgiven had to be on payroll costs. The SBA would have not forgiven amounts in excess of 25% for non-payroll costs, but still allow some forgiveness of the loan. As currently drafted, the PPPFA creates a “cliff effect” by stating that unless a borrower spends at least 60% of the loan proceeds on payroll costs, then none of the loan will be forgiven.
  • Increases the term of loan repayment from 2 years that was established by the SBA to a minimum term for repayment of 5 years for loans made on or after the date of enactment of PPPFA. For loans in place prior to the enactment date, PPPFA provides the flexibility for lenders and borrowers to mutually agree to extend the term to a minimum of 5 years.
  • Allows businesses that have the PPP loan forgiven to continue deferring the payment of eligible payroll taxes through the rest of 2020. Previously, once the PPP loan was forgiven, a business was not eligible to continue deferring the payment of eligible payroll taxes.
  • Allows for the deferral of the payment of principal and interest on the PPP loan until the loan forgiveness application is submitted, but no later than 10 months after the end of the covered period.

While the PPPFA extends the time period for using the PPP funds to be forgiven, it has not extended the time frame to apply for a PPP loan. The SBA will not issue any new PPP loans after June 30, 2020.

What was not included in PPPFA? The deductibility of the expenses paid with forgiven PPP funds. Pursuant to Notice 2020-32, the IRS has stated that expenses paid with forgiven PPP funds will not be deductible for tax purposes. This is despite many lawmaker’s stated opposition to the IRS’s position on this matter. Hopefully future legislation will address this issue.


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