The U.S. Senate voted to pass the Paycheck Protection Flexibility Act of 2020 (the Act) yesterday. It now moves to the President for likely signature.
The Act contains the following major provisions beneficial to many borrowers participating in the CARES Act Paycheck Protection Program loans.
- The period within which the borrower must use the funds for qualifying purposes is extended from 8 weeks to 24 weeks from the loan origination date. If more beneficial, borrowers can retain the 8 week testing period.
- The percentage of borrowed funds required to be used for payroll-related purposes in determining forgiveness amounts is reduced from 75% to 60%. There is some uncertainty relating to the language in the Act, which, by its terms, means that the new 60% standard could be imposed as a cliff—if the borrower does not achieve a minimum of 60% payroll cost usage, none of the loan qualifies for forgiveness (this was not part of the original CARES Act).
- The CARES Act deadline of June 30 to restore workforce headcount and wage levels is extended in the ACT to December 31, 2020.
- The Act contains two new provisions allowing for full PPP loan forgiveness despite not being able to reestablish employment levels to pre-COVID-19 levels. The prior exception relating to good faith employment offers that were rejected remains in place. In addition, new exceptions are provided for the inability to hire qualified replacement employees or for operating restrictions imposed by federal guidance (from HHS, CDC, or OSHA) due to COVID-19, which inhibited the ability to return to pre-February 15, 2020 operating/employment levels.
- PPP loan rates remain at 1% (new or existing). The Act makes the repayment period on any post Act loans 5 years. For any existing PPP loan, the term can be extended from the prior 2-year period to 5 years if the lender and borrower agree.
- The CARES Act had stated that if any PPP loan was forgiven, the borrower was not eligible for the deferral of employer social security tax deposit requirements (2020 taxes allowed to be deferred to 2021 and 2022) allowed under CARES Act section 2302. The Act now allows any PPP borrower to be eligible for the employer social security tax deposit deferral, even if some portion of the PPP loan is forgiven.
- For borrowers who do not apply for forgiveness within 10 months of the end date of their covered period in the CARES Act section 1106(a), repayment must begin with the expiration of that 10-month period.
- There is uncertainty as debated within the Senate prior to passage whether the Act extends the time for applying for PPP loans beyond June 30, 2020. Absent clear guidance otherwise, borrowers would be well advised to assume the June 30, 2020 deadline remains in place.
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