Late last week, the President signed the Paycheck Protection Program Flexibility Act of 2020 (the “Act”). The Act makes significant changes to the popular Paycheck Protection Program (“PPP”) by easing prior loan forgiveness restrictions and guidelines. As of May 30, 2020, more than $510 billion remained available for PPP funding.
Extension of the Period to Make Eligible Expenditures. The PPP program was initially established to provide forgivable loans to businesses for eligible expenditures that were made within the 8 week period following loan origination. This frequently created conflict for businesses that had employees on unemployment and those that were unable to reopen immediately due to operating restrictions imposed by the states. The Act seeks to address those inconsistencies by extending the 8 week period during which forgivable expenses may be incurred to 24 weeks from the date of origination or December 31, 2020, whichever is earlier. Existing borrowers may still choose to use the original 8 week period.
Relaxed Standard for Determining Reductions in FTE and Reductions in Pay. As mentioned above, borrowers frequently struggle to recall their employees due to COVID-19 concerns and increased unemployment benefits. The SBA previously addressed this concern in PPP FAQ #40, allowing borrowers to disregard employees who declined a good faith written offer of rehire from the FTE and salary calculation. The Act expands this exemption for borrowers who are, in good faith, unable to rehire the employees it previously employed as of February 15, 2020 and are unable to hire similarly qualified employees for the unfilled positions before December 31, 2020. Borrowers that can document their inability to return to their February 15, 2020 or earlier level of business activity because of OSHA, CDC or HHS restrictions issued between March 1, 2020 and December 31, 2020, related to the sanitation, social distancing or other worker or customer safety requirements are also included in the exemption. Much of the guidance issued by CDC was taken into consideration in the promulgation of Governor Lamont’s executive orders, indicating that many businesses shuttered due to such executive orders may be eligible for the expanded exemption. Further, the Act extends the safe harbor rule for those who do not qualify under the above exemptions. The safe harbor, previously slated to end June 30, 2020, has been extended to December 31, 2020.
Greater Flexibility to Use PPP Funds. The Act also changes the previous guidance that required qualified payroll costs to constitute a minimum of 75% of the forgiveness amount. Now, the Act mandates that 60% of the PPP funds be spent on payroll costs or the borrower will not be eligible for forgiveness. This hard line appears not to have been intended and it is anticipated that forthcoming clarification will be issued to allow for a sliding scale of forgiveness if the 60% threshold is not achieved.
Relaxed Terms for Repayment of Loan. The Act further: extends the deferral period for payment of principal, interest, and fees; amends the maturity date for loans made after the Act’s date of enactment from 2 years to 5 years; and notes lenders and borrowers with loans prior to the date of enactment are allowed to modify the loan to conform to this new minimum maturity.
If you have questions about how the Act impacts your business, please contact any member of our Carmody Torrance Sandak & Hennessey LLP team below:
Thomas R. Candrick, Jr.
(203) 784-3103; firstname.lastname@example.org
(203) 575-2621; email@example.com
Matthew H. Gaul
(203) 784-3106; firstname.lastname@example.org
Joseph L. Kinsella
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Mark J. Malaspina
(203) 575-2625; firstname.lastname@example.org
Michael J. Reardon
(203) 575-2612; email@example.com
Mark F. Williams
(203) 575-2618; firstname.lastname@example.org
(203) 578-4270; email@example.com
Ann H. Zucker
(203) 252-2652; firstname.lastname@example.org
Johanna K. Bachmair
(203) 784-3183; email@example.com
Wesley D. Cain
(203) 784-3105; firstname.lastname@example.org
Stephanie E. Cummings
(203) 575-2649; email@example.com
Timothy S. Klimpl
(203) 252-2683; firstname.lastname@example.org
Kevin G. Palumberi
(203) 252-2692; email@example.com