Congress Passes Bill Providing More Flexibility to PPP

Congress passed legislation amending the Paycheck Protection Program (“PPP”) in hopes of making the program more useful to small businesses. Prior to the amendment, the PPP required loan proceeds to be spent during an eight-week covered period for a loan to be eligible for forgiveness. Additionally, 75 percent of the proceeds had to be used on payroll costs, so only 25 percent could be spent on certain eligible non-payroll expenses (e.g., mortgage interest and lease payments for real estate and personal property and utility payments “incurred or paid” during the covered period). The amendment, entitled the Paycheck Protection Program Flexibility Act of 2020, relaxes these limitations, in addition to making a number of other substantive changes. The changes include:

• Increasing the amount of loan proceeds that may be spent on eligible non-payroll costs from 25 to 40 percent (and thus also decreasing the amount that must be spent on payroll costs from 75 to 60 percent);
• Increasing the covered period during which loan proceeds must be spent in order to be eligible for forgiveness from eight weeks to 24 weeks for all borrowers, including those who have already received their loans;
• Extending the deadline for businesses that reduced wages (by more than 25 percent) or workforce between February 15, 2020 and April 26, 2020 to restore wages or rehire workers from June 30, 2020 to December 31, 2020 to avoid a reduction in forgiveness eligibility;
• Creating an additional safe harbor to avoid a reduction in loan forgiveness for employers that (i) fail to rehire specific or similarly qualified employees prior to December 31, 2020 but are able to document their good-faith efforts to do so during the relevant time period; or (ii) are unable to return to the same level of activity and therefore unable to fully restore their workforce or wages due to their compliance with certain COVID-19-related safety issues (social distancing, maintenance of sanitation standards, etc.);
• Extending the deferral period for loan repayment from six months after the date of loan origination until the date the lender receives payment from the SBA for any forgiveness amount;
• Creating a start date for the repayment period for borrowers who do not seek forgiveness (such period shall commence 10 months from the end of the covered period of a borrower who does not apply for forgiveness);
• Extending the allowable loan repayment period from two to five years;
• Extending the PPP to December 31, 2020; and
• Allowing PPP borrowers to take advantage of the payroll tax deferment that was included elsewhere in the CARES Act.

If you have any questions regarding these changes to the PPP or to the program in general, please contact your Dinsmore Health Care attorney.