Le gal gue st c o lu m n
PAYCHECK PROTECTION PROGRAM FLEXIBILITY ACT OF 2020 SIGNED INTO LAW
BY: BOB BARTON, MANAGING PARTNER; ASHLEY CARVER MEREDITH, ASSOCIATE; RYAN GONZALES ASSOCIATE, TAYLOR PORTER LAW FIRM President Donald Trump signed into law the Paycheck Protection Program Flexibility Act of 2020. The Act modifies provisions related to the forgiveness of loans made to small businesses under the Paycheck Protection Program. The following is a summary of the Act’s key provisions: •The Act extends the covered period during which borrowers may use loan proceeds for eligible expenses from 8 weeks to 24 weeks or until the end of the year, whichever comes first, and borrowers have until December 31, 2020, to restore reductions in employee headcount and wages. Borrowers that received their PPP loans prior to the enactment of the Act, however, may choose to opt out of the extension and continue using the original 8-week covered period if the shorter covered period produces a more favorable result for the borrower. •For borrowers that are unable to restore reductions in employee headcount to pre-pandemic levels, the Act provides two new exceptions to the loan forgiveness rules. Under the first exception, a borrower will not be penalized for a reduction in the number of full-time equivalent (FTE) employees if the borrower, in good faith, is able to document an inability to rehire individuals who were employees on February 15, 2020 and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Under the second exception, a borrower will not be penalized for a reduction in FTE if it is able to document an inability to return to the same level of business activity as such 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.
payment. As currently written, if a borrower does not spend at least 60% of the loan amount on payroll costs, none of its loan amount will be forgiven. Members of Congress have indicated, however, that technical tweaks could be made to restore the bill to a sliding scale which would allow for partial forgiveness. •PPP loans made after the enactment of the Act will have a minimum maturity of 5 years. Though existing PPP loans maintain their 2 year maturities, the Act allows lenders and borrowers to mutually agree to modify the existing 2-year maturity to conform with the 5-year maturity provided in the Act. •The Act eliminates a CARES Act provision that makes PPP loan borrowers ineligible for deferment of payroll taxes. Employers now would be able to defer paying the relevant payroll taxes regardless of whether the borrower receives forgiveness of a PPP loan. On June 17, the SBA, in consultation with the Department of the Treasury, posted a revised, borrower-friendly PPP loan forgiveness application implementing the PPP Flexibility Act of 2020. In addition to revising the full forgiveness application, SBA also published a new EZ version of the forgiveness application that applies to borrowers that: are self-employed and have no employees; or did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; or Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%. The EZ application requires fewer calculations and less documentation for eligible borrowers. Both applications give borrowers the option of using the original 8-week covered period (if their loan was made before June 5, 2020) or an extended 24-week covered period. These changes will result in a more efficient process and make it easier for businesses to realize full forgiveness of their PPP loan.
•To be eligible for loan forgiveness borrowers now must use at least 60% (rather than 75%) of the loan amount for “payroll costs” and may use up to 40% for: i) payment of *All updated documents can be accessed at SBA.gov as interest on any covered mortgage obligation; ii) payments of the PPP loan rules continue to be updated* rent on covered rent obligations; or iii) any covered utility www.abcpelican.org/newsletter
48
