President Trump signed into law the Paycheck Protection Flexibility Act which restructures how employers can use loans issued through the Paycheck Protection Program (PPP).
The new legislation gives business owners more flexibility and time to use their PPP loan and still get it forgiven. Key changes the new legislation makes:
- More time to spend funds. Business owners now have 24 weeks (up from eight weeks) from the loan origination date or December 31, 2020, whichever comes first, to spend their PPP funds. However, borrowers can choose to stay within the eight-week period initially enacted if they so choose. Staying within the eight-week period may appeal to businesses who have spent their PPP loan and qualify for full forgiveness and do not wish to wait until the end of the year to apply.
- Utilization requirements adjusted. Originally the PPP required that at least 75% of loan funding be directed toward payroll costs in order for the loan to be forgiven. Under the new requirements, this percentage has decreased to 60%.
- New rehire deadline. The date to replace or rehire your workforce has been rolled back from June 30 to December 31, 2020.
- Extended repayment time frame and deferral date. Any portion of your PPP loan that is not forgiven can now be paid over the course of five years instead of two. The interest rate of 1% remains the same. The new legislation also extends the deferral date of the loan to the date on which the SBA determines the loan forgiveness amount.
- Additional exemption from a reduction in loan forgiveness. The bill includes a new exemption from a reduction in loan forgiveness for borrowers who have difficulty rehiring or hiring new employees to meet the PPP employee retention threshold. Documentation of these difficulties will be required.
- Payroll tax deferrals. PPP loan borrowers will be eligible for deferring payroll taxes as per the CARES Act, regardless of whether their loans are forgiven or not. An incentive of the original PPP legislation allowed employers to defer the employer’s 6.2% share of 2020 Social Security tax until the end of 2021 (50%) and 2022 (50%). This deferral, however, was only available to a borrower of a PPP loan until the moment the loan is forgiven. This latest update allows an employer who has received a PPP loan to defer all of its 2020 Social Security tax burden into 2021 and 2022, even if the PPP loan is forgiven prior to December 31, 2020.
Read the legislation in full here.
It has been reported as recently as June 3 that more than $120 billion remained in funds available for distribution via the PPP. To apply for a PPP loan, use the application form linked here (Spanish version available here) or contact a participating lender here.
For additional questions regarding the PPP, visit the US Small Business Administration website. For questions about your PPP loan, we encourage you to contact your lender directly. As always, if you are in need of additional assistance, please feel free to contact your Employer Flexible HR Consultant.
