The Paycheck Protection Program Flexibility Act (PPPFA) was passed on June 5th with the goal of making it easier for Paycheck Protection Program (PPP) loan recipients to qualify for forgiveness.
Here are some of the major changes brought by the PPPFA:
Lowered payroll costs percentage requirement
Prior to the PPPFA, business owners had to spend at least 75% of their PPP funds on payroll expenses to qualify for full forgiveness, leaving 25% for qualified non-payroll costs such as rent and utilities. Now, borrowers may use 60% of their PPP funds on payroll expenses to receive full forgiveness, leaving 40% for qualified non-payroll costs.
Extended Covered Period
Before the PPPFA was passed, loan recipients had to spend their PPP funds within an 8-week Covered Period following the disbursement of the loan. Borrowers now have 24 weeks after receipt of their loan to spend the funds (or by December 31st, 2020, whichever is earlier). Those who received their loan before the PPPFA was enacted may choose to keep their original 8-week Covered Period or adopt the 24-week Covered Period.
Alternative Payroll Covered Period
Under the PPPFA, borrowers may choose to spend their payroll costs during the Covered Period (beginning the day they receive their PPP loan funds) or they can use the Alternative Payroll Covered Period. This allows borrowers to calculate their 24-week (or 8-week) period beginning on the first day of their regular pay period.
Example: ABC Company received its PPP loan Friday, May 1st. Their next payday is Thursday, May 7th. Using the Alternative Payroll Covered Period, ABC Company can calculate its 8 or 24-week period beginning on May 7th.
Extended repayment period
The PPPFA increases the repayment period on loans made after its enactment from 2 years to 5 years (still at 1% interest). Loans that originated before the PPPFA can be amended to the 5-year repayment period if there is an agreement made between the borrower and lender.
Payroll tax deferral
Previously, PPP borrowers who received loan forgiveness could not take advantage of the CARES Act’s payroll tax deferral. Under the PPPFA, businesses that received PPP loan forgiveness can defer the employer’s portion of Social Security wages paid from March 27 through December 31, 2020.
For more information, please watch our Paycheck Protection Program Flexibility Act Webinar. You can download the slides from the presentation here.
Author: Megan O’Donnell