U.S. Senate approves sweeping amendments to PPP forgiveness

The U.S. Senate has passed the ‘Paycheck Protection Program Flexibility Act of 2020’, a bill that contains sweeping changes to the forgiveness criteria of the U.S. Government’s flagship small-business stimulus package, the Paycheck Protection Program.

The new bill outlines a raft of changes designed to make it easier for PPP loan recipients to achieve near 100% forgiveness – the ‘covered loan’. It also seeks to correct the fundamental flaw of the original PPP legislation, that the forgiveness, or ‘covered period’ was limited to only eight weeks.

The top seven headlines from the new bill, which is awaiting the President’s signature, include:

1) An extension of the covered period from 8 to 24 weeks

The covered period, being the period in which expenses incurred can qualify for forgiveness, is now the earlier of 24 weeks from the date the loan was received, or the 31 December 2020. Existing borrowers can however still elect to use the original eight-week period.

2) An extension of time for repayment of any funds not qualifying for forgiveness

For any funds that do not qualify for forgiveness, borrowers now have five years from the loan origination date to repay funds – this was originally two years. The interest rate remains unchanged at 1%.

3) More flexibility on how funds can be used for forgiveness

Under the new bill, a minimum of 60% of the forgiven loan must be payroll costs (the definition of payroll costs remains unchanged).

Borrowers can therefore include non-payroll costs (rent, mortgage interest, utilities – as previously outlined) amounting to up to 40% of their ‘covered loan’ amount.

4) Extension of the loan maturity to five years

Previously, borrowers had two years to repay any amounts that were not forgiven – the new bill extends this to five years.

Similarly, loan repayments are now only due 10 months after the final day of the covered period. Originally, repayments were due six months from the dates loan monies were received.

5) Extension of grace-period for re-employment

Borrowers now have until the 31 December 2020 to restore their headcount to pre-Coronavirus levels in order to avoid any reduction in loan forgiveness.

6) A new safe-harbor provision for employee headcount

The new bill also introduces new measures to protect employers who are unable to restore headcount as a direct result of Coronavirus. There is no reduction of loan forgiveness:

• If the borrower can demonstrate the inability to re-hire existing employees, or similarly qualified employees for unfilled positions by 31 December 2020, or
• If the borrower cannot return to a similar level of business operation that was in place as at 15 February 2020, as a direct result of compliance with CDC or other Federal Agencies’ regulations (social distancing, sanitation and similar).

7) FICA tax deferral

Employers can defer FICA taxes (federal employer payroll taxes) for the period 27 March 2020 – 31 December 2020. Any amounts deferred are due for repayment in two installments – the first 50% by 31 December 2021, the remaining 50% by 31 December 2022.

While the new bill is undoubtedly positive for PPP borrowers, there are a number of points which will require clarity, and we await SBA guidance on these. However, if you would like more information on anything covered here, please do get in touch.