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Paycheck Protection Flexibility Act

On June 5, 2020, the President signed into law the Paycheck Protection Program Flexibility Act. This legislation modifies the U.S. Small Business Administration (SBA) Paycheck Protection Program (PPP). The Flexibility Act includes the following modifications:

1. Extends Forgiveness Period

This Flexibility Act extends to the cover-period from 8 weeks to 24 weeks. 8-week cover period.

  • The 24-weeks cover period cannot be extended beyond Dec. 31st.
  • Borrowers who received loans prior to this change in legislation may elect to use the 8-week period instead.

Since many businesses can’t reopen or bring employees back with-in the limited cover period window of 8 weeks, this extension increases the potential of full or close to full forgiveness. However, it may be in the best interest of some borrowers to get this loan forgiven as soon as possible due to other variables.

2. Reduces Payroll Expense Requirement

This act reduces the 75% payroll expenditure requirement to 60%.

  • Thereby increasing the non-payroll expenditure allowance to 40%.
  • If the minimum requirement of allocating 60% of loan proceeds to payroll costs is not met then the entire loan will be ineligible for forgiveness.

3. Extends the Rehiring Time Period

Borrowers have a longer period of time to restore their workforce. The Act extended the safe harbor deadline for rehiring the employees from June 30, 2020, to December 31, 2020.

  • If a reduction in employee headcount took place prior to April 26, 2020, and it is restored before December 31st then your loan is exempt from reduction.
  • If a reduction in employee headcount occurs after April 26 then the borrower does not qualify for safe harbor.

4. Expands Relief for FTE Exemptions

The new Act also provides 2 new exemptions for the reduction in loan forgiveness based on full-time equivalent employee reductions during the period beginning on February 15, 2020, and ending on December 31, 2020.

  • The first exemption to loan reduction applies if a borrower can document: (1) the inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and (2) the inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020;
  • The second exemption applies if a borrower can document the inability to return to the same level of business activity it was before Feb. 15, 2020 due to compliance with the U.S. Department of Health and Human Services (HHS), Centers for Disease Control and Prevention (CDC) or Occupational Safety and Health Administration (OSHA) guidance

5. Extends Loan Maturity Date

The Flexibility Act extends the repayment period from 2 years to 5 years for new loans.

  • Existing loans are still subject to the 2-year maturity date. The Act allows existing borrowers and lenders to amend loans previously made.
  • The interest remains 1%.

6. Extends Loan Deferral Period

The Flexibility Act extends the deferral period from 6 months to the time the SBA determines the amount of loan forgiveness and remit it to the lender. Borrowers who do not apply for forgiveness will be required to start making payments on the 10th month after the last day of the cover period.

7. Allows Borrowers to Qualify for Payroll Tax Deferral

The CARES Act allows employers and self-employed individuals to delay the deposit of the employer-portion of the social security tax. However, under the CARES Act businesses that had loans forgiven under the PPP loan program were not eligible for payroll tax deferral.  The Flexibility Act removes this restriction, borrowers are now eligible for the deferral of the employer’s share of payroll taxes regardless of when the borrower receives the loan. The payments of the employer’s share of social security taxes (6.2) can be deferred and paid over the next two years. This applies to wages paid from March 27, 2020, to December 31st, 2020. The payment of tax is deferred, with 50 percent of the tax payable on December 31, 2021, and the remaining 50 percent of the tax payable on December 31, 2022.

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