Business Owners Get More Flexibility with PPP Loan Forgiveness

PPP loan recipients got some welcome relief on Friday when the Paycheck Protection Program Flexibility Act of 2020 was signed into law, extending the amount of time to use the loan and making it easier to be eligible for loan forgiveness.  Originally, in order to receive forgiveness for the PPP loan, recipients were required to use at least 75% of the funds on payroll within 8 weeks of loan disbursement. This proved challenging to some businesses who were fortunate to receive the loan, but may still have been ordered closed pursuant to state stay at home orders, or had not fully ramped up to full employment. The Act is intended to alleviate some of the requirements for forgiveness of the loan. The new law extends the time forgiveness time frame for use of the loan proceeds from 8 to 24 weeks, or the end of the year, whichever is later.

The Act also reduces the amount of the loan that must be used on payroll expenses and still qualify for forgiveness. The amount of the loan proceeds that must be spent on payroll expenses went from 75% to 60%, and borrowers may use the other 40% for rent, utilities, or mortgage obligations.

There are also new exceptions to the requirement of restoring full employment to pre-pandemic numbers.  The first exception relates to the inability to rehire employees who were employed on February 15, 2020.  The employer must be able to document that the employer in good faith attempted to rehire the employees, but he employees were unable to return.  The second relates to the inability to rehire as result of the employer’s compliance with the CDC, OSHA, or Department of Human Services.

Additionally, the new law allows deferral on the payment of eligible payroll taxes, regardless of whether the loan is forgiven.

Finally, the loan repayment maturity date for any non-forgivable loan was extended to five (5) years for new PPP loans.  For loans already issued, the law allows borrowers and banks agree to modify the terms of their loan to extend the maturity date to five years.

These clarifications and new provisions provide small businesses the flexibility and additional relief they were seeking once the original PPP Loan Program was quickly rolled out in March.  If you have any questions on how to navigate the loan forgiveness program, or any of the other federal programs, please do not hesitate to contact me.