On June 3, 2020, the US Senate passed the bipartisan PPP Flexibility Act (HR 7010), which was previously passed by the US House of Representatives; the president has signed the legislation into law. At the time of the passage of HR 7010, there is approximately $100 billion in Paycheck Protection Program (PPP) funding available, and eligible borrowers have until June 30th to apply for a PPP loan.
The following is for informational purposes only, and APMA is not providing legal, accounting, or financial advice. Members should speak with a duly licensed attorney or accountant in their state to discuss their individual situations and how this legislation and its changes to the PPP apply to their circumstances.
The PPP Flexibility Act gives borrowers more favorable terms, and the main takeaways are:
1. Loan Maturity Extended
The bill establishes a minimum maturity of five years for the paycheck protection loan for new borrowers. While the CARES Act allowed for maturity up to 10 years, the Small Business Administration (SBA) and Treasury Department originally issued rules that set a minimum maturity for two years. That rule is still in effect for current borrowers unless borrowers and lenders mutually agree to new terms.
2. Covered Period is Extended
The bill also extends the covered period from 8 weeks to 24 weeks after the date of the loan’s origination or December 31, 2020, whichever is earlier, during which a loan recipient may use such funds for certain expenses while remaining eligible for forgiveness.
3. Greater Flexibility in Spending
The bill raises the non-payroll portion of a forgivable covered loan amount from the current 25 percent up to 40 percent. To be eligible for loan forgiveness, borrowers must spend 60 percent on payroll costs. SBA and Treasury had originally set it to 75 percent.
4. Safe Harbor to Rehiring of FTE/Establishing of Wages Extended
The bill extends the period in which an employer may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a paycheck protection loan to December 31, 2020. Employers originally had until June 30, 2020, to restore FTE count and employer wages to be eligible for loan forgiveness.
5. Exemption for Reduction of Employees
The forgivable amount must be determined without regard to a reduction in the number of employees if the borrower documents that he or she is: 1) unable to rehire former employees and is unable to hire similarly qualified employees; or 2) unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19.
6. Deferral Period Revived
Additionally, the bill revises the deferral period for paycheck protection loans, allowing recipients to defer payments until they receive compensation for forgiven amounts. Recipients who do not apply for forgiveness shall have 10 months from the program's expiration to begin making payments.
APMA will continue to update members if and when SBA and Treasury issue any guidance related to this legislation. Visit www.apma.org/covid19SBA for the latest updates.