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CARES Act Update: Flexibility Added to the Paycheck Protection Program

06/19/2020

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) was enacted, amending key provisions of the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The changes provide relief to borrowers of PPP loans in the form of expanded forgiveness and increased flexibility in the use of loan proceeds. Businesses and individuals seeking to take advantage of the PPP loan program are reminded that the deadline for new PPP loans is June 30, 2020.

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The following outlines key provisions of the PPPFA:

Extends the forgiveness covered period from eight weeks to 24 weeks

The PPPFA extends the period during which qualifying PPP loan expenditures may be forgiven from eight weeks to 24 weeks. Borrowers of PPP loans in place prior to June 5, 2020 may elect either the eight-week period or the 24-week period.

Reduces the payroll cost expenditure threshold for PPP loans from 75 percent to 60 percent

The PPPFA reduces the percentage of PPP loan proceeds that must be used on payroll expenses from 75% to 60%. Borrowers that spend less than 60% of the PPP loan proceeds on payroll expenses may still qualify for partial PPP loan forgiveness so long as at least 60% of any forgiven amount is used on payroll expenses.

Extends the repayment term for new PPP loans with a remaining balance after forgiveness

The PPPFA extends the maturity of new PPP loans made after June 5, 2020 to five years instead of two years. For PPP loans made prior to June 5, 2020, borrowers and lenders may mutually agree to extend the loan term to five years (but lenders are not obligated to do so).

Extends the deferral of principal and interest payments for PPP loans

The PPPFA extends the deferral for repayment of any principal, interest and fees on PPP loans from six months to the date on which the lender receives the forgivable amount from the Small Business Administration. In addition, borrowers who do not apply for forgiveness will have 10 months following the end of their covered period (either eight weeks or 24 weeks) before first payment is required.

Eases requirements on rehiring workers and restoring salary reductions

The PPPFA extends the safe harbor date for restoring the full amount of full-time equivalent employees or eliminating salary reductions from June 30, 2020 to December 31, 2020 for purposes of maximizing loan forgiveness.

In addition, the PPPFA adds two new safe harbors for borrowers to maximize loan forgiveness irrespective of a reduction in full-time equivalent employees.  Specifically, a borrower may calculate loan forgiveness without regard to a reduction in employees if the borrower can document, in good faith:

  • an inability to rehire individuals who were employees of the borrower on February 15, 2020, and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or
  • an inability to return to the same level of business activity existing prior to February 15, 2020 due to compliance with COVID-related health and safety guidance.

Removes the limitation on businesses deferring payroll taxes under the CARES Act

The PPPFA permits borrowers with forgivable PPP loans to defer payment of payroll taxes through December 31, 2020, with payments due over the following two years.

On June 16, 2020, the Small Business Administration and Department of Treasury released revised PPP loan forgiveness application forms, which implement the provisions of the PPPFA. Borrowers have two PPP loan forgiveness application options: Form 3508 (and related instructions) and Form 3508EZ (and related instructions). Borrowers are reminded to maintain all underlying documents and data supporting expenditures of PPP loan proceeds.

If you have any questions about the Paycheck Protection Program or other aspects of the Coronavirus Aid, Relief, and Economic Security Act, please reach out to your HMB team member. For more information related to COVID-19, visit the HMB Resource Center for insights and resources designed to help businesses and individuals navigate pressing challenges related to the COVID-19 pandemic.

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Chicago IL 60661

Phone: 312-606-3200 Fax: 312-606-3232
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