Paycheck Protection Program (PPP) and Paycheck Protection Program Flexibility Act (PPPFA)
What is the Paycheck Protection Program (PPP)?
The CARES Act established the Paycheck Protection Program (PPP) as a temporary expansion of the traditional Small Business Administration (SBA) 7(a) loan program for small businesses. The $349-billion fund is intended to provide forgivable loans to help small businesses cover the costs of payroll, rent, mortgage interest, or utilities during the COVID-19 pandemic.
Although the original deadline for applications was on June 6, 2020, this was extended to August 8, 2020.
In addition to our other FAQs on this topic, here are some useful resources:
- SBA Borrower Information Sheet
- SBA Payroll Protection Program FAQs
- PPP Loan Forgiveness Application and Instructions
- EZ PPP Loan Forgiveness Application and Instructions
What is the Paycheck Protection Program Flexibility Act (PPPFA) and what did it change?
On June 5th, 2020, Congress enacted the Paycheck Protection Program Flexibility Act (PPPFA) as a way to help small businesses more effectively use their Paycheck Protection Program (PPP) loan proceeds.
In an effort to help small businesses and clarify some confusing aspects of the PPP, the PPPFA changed a number of the forgiveness requirements, namely:
- 24-week “covered period”: Under the PPP, you could request forgiveness for PPP funds spent within 8 weeks (56 days) after your loan disbursement date. Under the PPPFA, this period was extended to 24 weeks (168 days) (but in any event no later than December 31, 2020). (Note: If your disbursement date was before June 5, 2020, you may elect to retain the original 8-week “covered period”). (Read more about this topic here.)
- 60% on payroll costs: Under the PPP, you had to spend at least 75% of your forgivable amount on “payroll costs”. Under the PPPFA, this requirement was reduced to 60%. If less than 60% of your PPP funds are spent on payroll costs during the 24-week “covered period”, you are still eligible for partial loan forgiveness, but the forgivable amount spent on rent, utilities, and mortgage interest will be reduced accordingly. (Read more about this topic here.)
- 5-year repayment period: Under the PPP, you had to repay any unforgiven (or unused) PPP funds within 2 years after your disbursement date. Under the PPPFA, the repayment period was extended to 5 years. However, it appears that this extension only applies to loans made after the PPPFA was enacted on June 5, 2020 (based on the date the SBA assigns a loan number.) In other words, loans made before June 5, 2020 (still) must be repaid within 2 years, unless the borrower and lender agree to extend the repayment period (up to 5 years).
- 12/31/20 deadline to restore employee FTE and cash compensation: Under the PPP, if you reduced your overall employee FTE or the cash compensation of certain employees during your 24-week “covered period”, your maximum amount of forgiveness would be reduced proportionately unless you restored these levels by June 30, 2020. Under the PPPFA, this deadline was extended to December 31, 2020. (Read more about this topic here.)
- New safe harbors for maintaining employee FTE levels: Under the PPPFA, there are additional “safe harbors” that allow you to avoid any reduction in your forgivable amount based on a reduction in your overall employee FTE if you can demonstrate that the reduction was because you were either (a) unable to rehire an individual who was an employee on or before February 15, 2020, (b) unable to hire a similarly-qualified employee on or before December 31, 2020, or (c) unable to return to the same level of business activity as they were operating at prior to February 15, 2020. (Read more about this topic here.)
- No limits on payroll tax deferral: Under the PPP, you could defer payment of your payroll taxes until you received notice from your lender in response to your application for forgiveness. Under the PPFA, you may defer payment of payroll taxes the same as any other business (i.e. through December 31, 2020). Half of the deferred amount is due on or before December 31, 2021 and the other half is due on or before December 31, 2022. (Read more about the IRS guidance on payroll tax deferrals here.)
Learn more at our webinar:
Join Catalyst Law attorneys Nate Funk, Atha Mansoory, and Kimberly Pray on Tuesday, July 14th at 3:00 pm (PT) for a (free) live webinar on “Keeping up with the SBA: Updates on PPP Loan Forgiveness and Other Stimulus Programs.”
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