Senate Passes Paycheck Protection Program Flexibility Act of 2020: What Small Businesses Can Expect
June 4, 2020
Downey Brand COVID-19 News and Updates
In the wake of COVID-19, Congress enacted the Coronvairus Aid, Relief and Economic Security (“CARES”) Act which included the Paycheck Protection Program (“PPP”) designed to help businesses fund payroll and other critical expenses. On June 3, the U.S. Senate passed the Paycheck Protection Program Flexibility Act of 2020 (“Act”) which enacts changes to the PPP allowing businesses more flexibility in how they use their loan funds. The bill, which passed the House last week, now heads to President Trump’s desk for signature.
The Act makes the following changes to the PPP:
- Extend the covered period for new loans from 8 weeks to 24 weeks, not to extend beyond December 31, 2020. Existing borrowers can choose to keep the original 8-week covered period.
- Extend the period for employers to rehire employees to December 31, 2020, while creating a safe harbor for employers who were unable to rehire individuals or find similarly qualified individuals for employment.
- Create an additional safe harbor if the reduction in employees is due to the inability to return to the same level of business as pre-COVID-19 because of rules and regulations on sanitation, social distancing, or other worker safety requirements related to COVID-19.
- Lower the forgiveness requirement of spending 75% of loan funds on payroll expenses to 60%, which raises the limitation on non-payroll allowable expenses (such as rent, utilities, or mortgage interest) to 40% (previously 25%). Importantly, under the language of the Act, if the 60% requirement is not met the business is ineligible for forgiveness, eliminating the previous “sliding scale” approach.
- Extend the maturity date of loans made after enactment to 5 years. The maturity date of existing loans may be extended if agreed to by the borrower and lender.
- Extend the deferral period on payment of the loan until the lender receives the forgiveness amount from the SBA. If the borrower does not apply for forgiveness, payment may be deferred for 10 months.
- Allow borrowers who apply for loan forgiveness to defer certain payroll taxes.
More guidance is expected to come from the SBA in light of these changes to the PPP.
Downey Brand continues to track COVID-19 issues that may impact your business. Please reach out to the Downey Brand attorney you regularly work with, or to any of the attorneys throughout our Firm if you have further questions or concerns.