PPP Forgiveness: The Latest Update

**This article was updated to reflect additional guidance from the SBA and Congress. The intent of the Paycheck Protection Program Flexibility Act of 2020 was to keep the original deadline for PPP applications as June 30, 2020. Further, the Payroll Costs 60% Requirement was clarified as not being a cliff. The article below was updated to reflect these changes.**

**The Paycheck Protection Program Flexibility Act of 2020 was signed into law on Friday, 6/5/2020**

On June 3, 2020, the Senate passed the Paycheck Protection Program Flexibility Act of 2020 (the Act). The Act makes significant changes to the Paycheck Protection Program (PPP). Those involved with the PPP have had to deal with significant delays in awaiting vital guidance from the Small Business Administration (SBA) on basic program information. The program started accepting loan applications on April 3, 2020, but the Loan Forgiveness Application and the guidance regarding forgiveness were not released until May 15, 2020 and May 22, 2020, respectively.

The Act changes a large part of the existing forgiveness guidance, and would require a new Loan Forgiveness Application. The main changes which would be brought about by this bill are summarized below. Please note that the original PPP loan application deadline of June 30, 2020 remains.

Loan Maturity

The minimum loan maturity was changed from 2 years to 5 years. This maturity change is applicable to any loans made after this bill is passed, but also provides the option for borrowers and lenders to mutually agree to extend the maturity of any existing loans.

Extension of the “Forgiveness” Covered Period

The covered period during which borrowers were able to use funds and receive forgiveness has been extended to the earlier 24 weeks after PPP loan disbursement or December 31, 2020. The original Covered Period was only eight weeks. Borrowers who got a PPP loan before the passage of this Act can choose to keep the original 8-week Covered Period.

Extension of the Safe Harbor Deadlines for the FTE Reduction and Salary/Hourly Wage Reduction

Employers now have until December 31, 2020 to restore FTEs and salary/wages for reductions that were made between Feb. 15, 2020 and April 26, 2020. The original safe harbor restoration date was June 30, 2020.

Provides exemptions to the FTE Reduction based on Employee Availability

The Act provides additional exemptions to employers from the FTE Reduction. Such exceptions relate to being unable to rehire individuals who were employees as of Feb. 15, 2020 and being unable to hire a similarly qualified individual for the unfilled position before December 31, 2020. There is also an exception provided to employers who are unable to return to the same level of business activity as compared to Feb. 15, 2020 due to compliance with certain policies established by the Secretary of Health and Human Services, the CDC, or OSHA, or other safety standards related to COVID-19. Employers seeking these exceptions must be able to document them.

Changes the Payroll Cost 75% Requirement

Previously, at least 75% of the forgiveness amount had to be used for Payroll Costs. The Act lowers the percentage to 60%.  A Joint Statement by Treasury Secretary Steven T. Mnuchin and SBA Administrator Jovita Carranza issued on June 8, 2020 clarifies that the new 60% requirement will be applied in the same way as the prior 75% requirement. As such, borrowers who used less than 60% of the loan for Payroll Costs will simply have their forgiveness amount reduced in order to meet the 60% threshold.

Extension of the Deferral Period

Loan payments are now deferred until the amount of forgiveness is determined. Previously the deferment period was six months. Borrowers who do not apply for forgiveness within the deadline must start repayment at that time.

Deadline for Forgiveness

Borrowers must apply for forgiveness within 10 months of their “forgiveness” Covered Period which could run well into 2021. The Loan Forgiveness Application currently has an expiration date of October 31, 2020.

Borrowers who Obtain PPP Loan Forgiveness are Now Allowed to Delay Payment of Employer Payroll Taxes

Previously, the CARES Act disallowed employers who received any PPP forgiveness to delay payment of their employer payroll taxes. The Act removed that stipulation.

Questions? Contact us at covid19relief@hertzbach.com.