The Paycheck Protection Flexibility Act was passed on June 5, 2020 and triples the time allotted for small businesses to spend the funds and still qualify for forgiveness. Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond December 31, 2020. Borrowers may also use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels.
Notably, the payroll costs percentage was lowered. Now, 60% of loan proceeds must be spent on payroll costs, down from 75%. That means that forgivable non-payroll expenses can be as high as 40% of spending. Under the new act, the payroll expenditure requirement is a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. However, statements from congressional leadership have indicated that there may be “technical fixes” to keep the sliding scale in place.
Additionally, the repayment period has been lengthened and the new act allows borrowers whose loans are not forgiven up to five years to repay the loan. The interest rate has not changed. New borrowers are automatically given the five-year period. Current borrowers may adjust the repayment term up to five years, as long as their lender agrees to the modification.
Morgan R. Johnson