Paycheck Protection Program Flexibility Act of 2020 Signed Into Law

Among Changes: Act Extends Covered Period During Which Borrowers May Use Loan Proceeds for Eligible Expenses to 24 Weeks

By Bob Barton

Today, President Donald Trump signed into law the Paycheck Protection Program Flexibility Act of 2020. The Act modifies provisions related to the forgiveness of loans made to small businesses under the Paycheck Protection Program (“PPP”).

The following is a summary of the Act’s key provisions:

  • The Act extends the covered period during which borrowers may use loan proceeds for eligible expenses from 8 weeks to 24 weeks or until the end of the year, whichever comes first, and borrowers have until December 31, 2020, to restore reductions in employee headcount and wages. Borrowers that received their PPP loans prior to the enactment of the Act, however, may choose to opt out of the extension and continue using the original 8-week covered period if the shorter covered period produces a more favorable result for the borrower.
  • For borrowers that are unable to restore reductions in employee headcount to pre-pandemic levels, the Act provides two new exceptions to the loan forgiveness rules. Under the first exception, a borrower will not be penalized for a reduction in the number of full-time equivalent (FTE) employees if the borrower, in good faith, is able to document an inability to rehire individuals who were employees on February 15, 2020, and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Under the second exception, a borrower will not be penalized for a reduction in FTE if it is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020 due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020 and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
  • To be eligible for loan forgiveness borrowers now must use at least 60% (rather than 75%) of the loan amount for “payroll costs” and may use up to 40% for: i) payment of interest on any covered mortgage obligation; ii) payments of rent on covered rent obligations; or iii) any covered utility payment. As currently written, if a borrower does not spend at least 60% of the loan amount on payroll costs, none of its loan amount will be forgiven. Members of Congress have indicated, however, that technical tweaks could be made to restore the bill to a sliding scale which would allow for partial forgiveness.
  • PPP loans made after the enactment of the Act will have a minimum maturity of 5 years. Though existing PPP loans maintain their 2 year maturities, the Act allows lenders and borrowers to mutually agree to modify the existing 2-year maturity to conform with the 5-year maturity provided in the Act.
  • The Act eliminates a CARES Act provision that makes PPP loan borrowers ineligible for deferment of payroll taxes. Employers now would be able to defer paying the relevant payroll taxes regardless of whether the borrower receives forgiveness of a PPP loan.

Taylor Porter attorneys continue to closely monitor the developments of the SBA loan programs and the CARES Act. Visit the Taylor Porter Coronavirus – Legal News and Business Resources website for updated legislation, news, and legal developments pertaining to COVID-19.

About Bob Barton: Taylor Porter Managing Partner Bob Barton, practicing law since 1994, represents local and national businesses in matters involving commercial litigation and transactions, regulatory and compliance matters, and general litigation. He is the co-chair of the firm’s Business and Commercial Litigation practice. Bob has been selected for inclusion in both Louisiana Super Lawyers and Best Lawyers in Business Litigation.