June 5, 2020
Authored by: Robert Klingler
H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), was passed by the House of Representatives by a vote of 417-1 on May 28, 2020. The Senate passed H.R. 7010 unanimously by voice vote on June 3, 2020. President Trump signed the PPP Flexibility Act into law on June 5, 2020, making effective several modifications to the Paycheck Protection Program.
The PPP Flexibility Act causes a number of changes to the Paycheck Protection Program, including:
- An extension of the forgiveness period from eight weeks to twenty-four weeks (optional for existing PPP borrowers), which will also presumably affect the relevant covered period for measuring reductions in employees or salary and wages;
- A requirement for forgiveness to use 60% (rather than 75%) of the PPP loan proceeds on permissible payroll costs;
- An extension of the deadline to re-hire employees for an exemption to the forgiveness limitation to December 31, 2020 (from June 30, 2020);
- An additional statutory exemption for re-hiring employees based on a reduction in level of business activity due to COVID-19 and the government’s response;
- An extension of the payment deferral period until loan forgiveness is granted or a loan forgiveness application is not filed in a timely manner;
- A five-year loan maturity term for all new PPP loans (although existing loans will stay at two years unless borrower and lender mutually agree to extend; and
- Permission for all PPP recipients to take advantage of the CARES Act provision permitting deferred payment of the employer’s share of Social Security taxes due on wages paid through the end of the year.
Our Bryan Cave Leighton Paisner LLP Client Alert on the PPP Flexibility Act goes into further details on each of these changes. We anticipate further regulations and guidance from the Treasury and Small Business Administration shortly, but the PPP Flexibility Act provides a number of choices for PPP borrowers to consider.
As of June 4, 2020, over $100 billion remains in potential funding for PPP loans, and, assuming the money does not run out before then, PPP loan applications may be approved until June 30, 2020. The PPP Flexibility Act addresses some of the initial concerns regarding the ability to use the funds within the eight-week period, so we say need another surge in PPP loans over the remainder of the month.
Although not provided for in the PPP Flexibility Act, we also continue to hear significant calls for a simpler loan forgiveness application process for smaller PPP loans. We believe the primary consideration is for the threshold for such simpler forgiveness, with most believing that somewhere between $150,000 and $350,000 in PPP loan amount will be eligible for the simplified process. Based on current numbers, that would cover between 85% and 94% of current PPP borrowers (and between 26% and 43% of the dollar amount lent and potentially eligible for forgiveness under the program).