Paycheck Protection Program Flexibility Act (PPPFA) Signed into Law

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By Anthony Norman, Esq.

Today, June 5, 2020, President Donald Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA) with the purpose of addressing concerns expressed by the small business community around the Paycheck Protection Program (PPP).  Here is what the PPPFA attempts to correct:

PPPFA Reduces the Amount of the Loan Needed for Payroll

The first change brought on by the PPPFA is the reduction of the amount of the loan needed to be spent on payroll costs from 75% to 60%, which increases the amount of funds available for other expenses from 25% to 40%.

Some small businesses were expressing concern at being able to spend 75% of the loan proceeds on payroll, especially in areas where businesses are either not open at all or operating in a limited capacity and may not yet be fully staffed. This change should give those owner more flexibility to use loan proceeds on other covered costs.

PPPFA Extends Time Period to Use Funds

The second change was extending the time to use PPP funds from 8 weeks to 24 weeks.  This allows businesses extra time to spends the funds received by the PPP and ultimately, a higher likelihood that the small businesses loan will be forgiven.

Again, in some instances where businesses are not operating at full capacity, some businesses were struggling to spend the full amount of the loan in the original 8-week time frame. This extension should give businesses the extra time necessary to ensure that they get as much of the loan forgiven as possible.

Deadline to Rehire Workers Pushed Back

Another issue with the PPP was the deadline for small businesses to rehire their workers by June 30, 2020 in order for the workers’ salaries to count towards forgiveness.  This deadline has been pushed back to December 31, 2020.

Rehire Requirements Relaxed

The PPPFA adds additional exceptions for businesses having a reduced number of employees.  The law states a business call still receive forgiveness on payroll amounts if it:

  • Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
  • Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
  • Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.

These extra exceptions should help businesses that are unable to rehire their former employees or otherwise having a tough time finding qualified replacements.

Repayment Term Extended from 3 to 5 Years

The PPPFA also eases the repayment terms in the event loans or portions of them are not forgiven.  A business will now have five years at 1% interest to repay the loan.  In addition, the PPPFA allows borrowers to take advantage of the CARES Act provision allowing deferment of the employer’s payroll taxes for Social Security.

These changes to the Paycheck Protection Program gives small business owners some much needed flexibility in planning and administering their loan proceeds. If you have any questions about applying for Paycheck Protection Program loan, calculating loan forgiveness, or how these changes may affect your small business, the attorneys at Gravis Law can help, please give us a call!