PPP Flexibility Act

How it alters the provisions of PPP Loan Forgiveness

Last night, the Senate passed the House bill, called the Paycheck Protection Flexibility Act, and passed it to the President for signature. The bill, which the President is expected to sign, significantly alters provisions of the PPP loan forgiveness. The changes include the following:

• Borrowers can elect to extend their eight-week covered period to 24 weeks. New loans will automatically have a 24-week covered period. The covered period cannot extend beyond December 31, 2020. The flexibility of allowing borrowers to extend the covered period is expected to make it easier for borrowers to achieve complete, or almost complete, forgiveness.
• Reduced the amount that must be used on payroll costs to achieve maximum forgiveness from 75% to 60%, allowing up to 40% for other allowable expenses. The 60% threshold in the bill is currently a cliff, meaning that at least 60% of the loan must be used on payroll to achieve any forgiveness. There is talk in the Senate about tweaking the language to restore the sliding scale provided for in the previous forgiveness rules.
• Extended the repayment period on new loans to five years. The repayment terms on existing loans remain at two years unless the borrower and the bank agree to adjust the terms.
• Extends the safe harbor dates for restoring employee levels and wages from June 30, 2020, to December 31, 2020.
• Borrowers may now delay payment of their payroll taxes, something that was prohibited by the previous rules.

We have been working to build templates to help with the complicated forgiveness calculations. Given the potential to extend the covered period, something we think most borrowers will elect, we are pausing these efforts for now.

We are encouraged that Congress recognized some of the challenges in the initial implementation and has taken steps to address them. We expect we will continue to see changes and believe the best thing is to do for now is to wait for the dust to settle.

Maintaining good accounting practices is essential, including proper supporting documentation of your expenses. Also, if you are interested in extending your covered period, you will want to reach out to your banker to understand their requirements. We will continue to update on changes and will advise when we feel comfortable that the new rules are sufficiently understood to continue our efforts to develop and release templates to support your loan forgiveness calculations.