PPP Forgiveness Terms Substantially Relaxed
The terms of the usage of PPP loans were just substantially relaxed by the Paycheck Protection Program Flexibility Act of 2020 – H.R. 7010. PPP recipients now have 24 weeks (the “covered period”), to use the loan proceeds instead of the original eight weeks and still receive forgiveness of the loan amounts. However, recipients of already issued loans can elect to still use the original 8 week period for purposes of their forgiveness application calculations if that is more favorable.
The PPP Flexibility Act also provides significant relief involving the provisions that reduce loan forgiveness amounts where staffing levels have declined. It adds additional time to cure cuts in staffing or compensation levels that reduce forgiveness amounts, extending the deadline from June 30 to December 31, 2020. It also adds a provision that allows two exceptions to the forgiveness penalties for staffing reduction. Where the loan recipient can document that it was unable to rehire staff because their prior employees, and similarly qualified employees, were not available, the forgiveness reduction will not apply. It also will not apply where the recipient is unable to return to the same level of business activity as before February 15, 2020 due to sanitation, social distancing or any other customer or worker safety requirements related to federal COVID-19 requirements or guidance.
It also eases the prior restriction developed through the regulatory process that 75% of PPP loan funds were required to be spent on payroll costs. The new PPP Flexibility Act provision requires only 60% of funds be used on payroll costs, allowing 40% to be spent on other specifically allowed costs of mortgage interest, rent and utility payments.
Further, it substantially extends the original PPP loan payment deferral terms. Originally, no payments of principal, interest or fees were required for six months. Now, no payments are required at all until a forgiveness determination is made, so long as the forgiveness application is filed within 10 months of the end of the “covered period.” That works out to a total of more than 15 months from when the loan is originated without any payments – the 10 months begin to run after the end of the extended 24 week period for using the funds. If the forgiveness application is not filed by the 10 month deadline, payments on the loans begin.
Finally, the PPP Flexibility Act removes a restriction on those that receive PPP loan forgiveness from also taking advantage of a delayed payment of employer payroll taxes. Now, PPP loan recipients who seek loan forgiveness will also be able to use the deferred payroll tax payment provisions of Section 2302 of the CARES Act. Those provisions allow for payment of 50 percent of specifically defined applicable employment taxes for 2020 to be paid by December 31, 2021, and the remainder by December 31, 2022.