The Paycheck Protection Program Flexibility Act (PPPFA) was signed on June 5, 2020 and revises several rules, making qualifying for full loan forgiveness easier for many small businesses. Make sure you read our original PPP Forgiveness article here if you haven’t already to get a grasp on the general mechanisms of PPP loan forgiveness, as this article will primarily focus on the changes to the initial rules.
60% Rule
Potentially the most important change the PPPFA came out with is that businesses are now only required to spend 60% of the loan funds on qualified payroll costs, not 75%. The law did not expand the definition of “other qualified expenses”, but businesses can now spend 40% of the loan on these expenses, instead of the previous 25%. Continue to track the expenses you use the PPP loan funds for because you still need to provide this proof when applying for forgiveness.
24-Week Covered Period
Another significant change from the PPPFA is the extension of the covered period from 8 weeks to 24 weeks. This gives businesses 3 times the amount of time they initially had to spend loan funds on payroll and other qualified expenses. Because the PPP loan amount was based on 10 weeks of payroll, payroll costs during the covered period may actually exceed the entire PPP loan amount allowing many more businesses to receive complete forgiveness on the loan. However, staff retention rules may still affect loan forgiveness. Thankfully, these have changed as well.
Staff Retention Exemption
Before the PPPFA, businesses had to rehire employees by June 30, 2020 to reach the same number of full-time equivalents from before the pandemic to avoid a reduction in their loan forgiveness. Since many businesses may not be open or not open at full capacity by June 30th, the deadline was moved back to December 31, 2020.
There are also additional exemptions that can be met if employee count is still below your limit; they are as follows:
- The business is unable to rehire an individual who was an employee on or before February 15, 2020;
- Can demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
- Can demonstrate an inability of the business to return to the same level of activity it was operating at prior to February 15, 2020
The law did not include specifications on how to demonstrate these exceptions, so keep an eye out for forthcoming guidance.
Other Changes
If you still have to pay back part or all of the PPP loan after these updates, the new law lengthened the repayment period from two to five years. Make sure to confirm this change with your lender if you have an existing PPP loan since the terms are obviously different from your originally signed loan.
Lastly, the PPPFA now allows borrowers to delay payment of their payroll taxes for Social Security, which was prohibited under the CARES Act.
The PPPFA is a big step in the right direction for many small businesses as the law relaxed many of the regulations limiting the possibility of full loan forgiveness. However, there are still numerous clarifications needed. As a result, expect additional guidance to be released in the future. Also note that your lending institution will notify you of when you can apply for forgiveness. Unfortunately, this is not something the SBA or your accountant can initiate so look out for communications from your lender.
