On May 28, 2020, the U.S. House of Representatives passed legislation that, if adopted by the Senate and signed into law by the President, would provide considerable relief to borrowers under the Paycheck Protection Program (PPP).
The bill, known as the Paycheck Protection Program Flexibility Act of 2020 (PPPFA), amends the original Coronavirus Aid, Relief, and Economic Security (CARES) Act to loosen restrictions placed on PPP loans, making them more favorable for borrowers.
If enacted, the PPPFA would:
- extend the loan forgiveness period from 8 weeks to 24 weeks, providing borrowers with more time to use the PPP loan proceeds and still retain eligibility for forgiveness;
- lower the requirement that borrower’s use at a minimum 75% of PPP loan proceeds on eligible payrolls costs from 75% to 60%, which would allow borrowers to spend a higher proportion of the PPP loan proceeds on non-payroll expenses and still obtain forgiveness on such expenses; and
- extend the safe harbor cutoff date for rehiring full-time equivalent (FTE) employees and eliminating prior salary/wage reductions from June 30, 2020 to December 31, 2020, providing PPP borrowers with more time to return to pre-pandemic payroll numbers.
Importantly, there also appears to be a carve-out in the PPPFA for businesses that cannot satisfy the safe harbor cutoff date through no fault of their own. Specifically, during the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness would be determined without regard to a reduction in the number of FTE employees if a borrower (a) is unable to rehire an individual who was an employee of the borrower on or before February 15, 2020; (b) demonstrates an inability to hire similarly qualified FTE employees on or before December 31, 2020; or (c) demonstrates an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.
In addition to directly improving the terms of forgiveness for borrowers, the PPPFA would also permit PPP borrowers to obtain loan forgiveness without losing the ability to defer the payment of certain payroll taxes. Currently, if a borrower obtains loan forgiveness under the PPP, the PPP borrower may not take advantage of the CARES Act provision that permits a business to defer payment of the employer’s share of social security taxes over a period of time. The PPPFA would allow borrowers to take advantage of this deferment provision without regard to whether the borrower has a PPP loan forgiven.