President Trump Signs Much Needed PPP Flexibility Bill Into Law
Jun 05, 2020
Today, President Trump signed the Paycheck Protection Program Flexibility Act (the PPP Flexibility Act). This Act provides much-needed relief by relaxing the stringent guidelines for businesses to receive loan forgiveness under the Paycheck Protection Program.
Key provisions include:
- The original 8-week period in which borrowers needed to spend the PPP Loan proceeds received can now be extended to 24 weeks. This extension provides additional time and opportunity for businesses to make the qualified expenditures necessary to have the loan proceeds forgiven. However, it is advisable if all loan proceeds have already been spent, businesses elect to apply for the original 8-week period (which is permissible) and expedite their forgiveness assuming the full-time equivalents (FTEs) have been restored.
- Previous regulations required a minimum of 75% of the loan proceeds forgiven must be spent on payroll expenses, health insurance, and/or retirement plans. If not met, loan recipients would forfeit a portion of their forgiveness. Thankfully, that hurdle has been dramatically reduced to 60% which allows businesses to now allocate up to 40% of the potentially forgivable loan proceeds to rent, utilities, and interest on secured debt. However, it does appear upon reading this is a “cliff rule”. Meaning if you only spend 59% on payroll, potentially ZERO dollars will be forgiven.
- Before H.R. 7010, PPP loan forgiveness rules indicated the amount forgiven would be reduced proportionately to the reduction of a recipient’s workforce during the original 8-week window if that same number of employees were not brought back by June 30th. According to updated legislation, this window has been modified to use the new 24-week window mentioned above with the amnesty rehire date being pushed back to December 31, 2020. For example, take an employer with 80 employees pre-pandemic who reduced its workforce to 40 employees during the 24 weeks. Assuming they spend the loan proceeds on qualified expenses during said 24 weeks, the employer will receive complete forgiveness so long as they’ve brought the workforce back to 80 by December 31st.
- Whether due to government restrictions still in place, a lack of qualified individuals, or even individuals choosing not to return to work as a result of the current federal unemployment subsidy, an exception to the rehire rule has been enacted. To qualify for this exception, the borrower must establish they have been unable to restore previous FTE levels due to one or more of the aforementioned scenarios. Unfortunately, this exception is still largely a gray area and we are hopeful that additional guidance is imminent.
- The repayment period for loan proceeds still owed after reductions for forgiveness and EIDL grants (up to $10,000) has been extended from 2 years to 5 years with the interest rate remaining unchanged at 1%. Additionally, payments on the amounts still owed can be deferred up to the date on which the SBA makes the loan forgiveness determination.
Many loan recipients were hopeful for some clarification and additional guidance as it pertains to the deductibility of expenses for which the PPP loan proceeds were used. However, this still remains unanswered.
William Vaughan Company continues to keep a careful watch on additional legislation and is committed to sharing with you our insights and perspectives as regulations develop. To ensure you are staying up-to-date, we encourage you to sign-up for our WVC Insights emails here.