THE
FLEXIBILITY ACT Borrowers buy more time and flexibility to spend funds Written By Jan Gilbert & Emily Doan
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n June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) was signed into law. The Flexibility Act provides small businesses with more time and flexibility to spend federal funds obtained through the Paycheck Protection Program (PPP). The PPP is a federal stimulus program under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted March 27, 2020, that addresses the economic impact of Covid-19 on small businesses. OVERVIEW OF THE PPP The CARES Act allocates a significant amount of federal funds through the PPP to cover payroll and overhead expenses for small businesses. When the CARES Act was enacted, the SBA guaranteed $349 billion in PPP loans for small businesses of not more than 500 employees (with some exceptions) to maintain their payroll during the pandemic. These loans have very favorable terms, including loan forgiveness for payroll and overhead
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Multi-Unit Franchisee
ISSUE 3, 2020
expenses, payment deferral, no collateral, no personal guarantees, no borrower or lender fees payable to the SBA, and a 100% guarantee by the SBA. Small businesses may borrow up to $10 million, with interest not to exceed 0.5%. These features make the PPP akin to an emergency grant program for small businesses to fund their payroll during the pandemic. After overwhelming demand from businesses applying for loans through the PPP since the program’s April 3, 2020 launch, the PPP ran out of funds. As a result, the Paycheck Protection Program Increase Act of 2020 was enacted on April 24, 2020. This act added an additional $310 billion to fund the PPP, and set aside $60 billion for community-based and smaller lenders to assist smaller businesses that were unable to access PPP funds during the first round of loans. The Flexibility Act made PPP loan terms more useful for borrowers by, among other changes, increasing the length of time for borrowers to spend PPP funds and increasing payment deferral and loan maturity.
