Important Information Regarding PPP Loans Under the Paycheck Flexibility Act

The Paycheck Flexibility Act (“PFA”) was signed into law by the President today, June 5. The PFA provides PPP loan borrowers with spending flexibility by adding additional time for loan proceeds to be used, while still qualifying for loan forgiveness. The PFA also makes some significant changes to the current PPP loan forgiveness requirements. PPP loan borrowers and applicants can expect the following changes to their loans:

Loan Forgiveness “Covered Period” Extended:

• The “covered period,” which refers to the amount of time a borrower has to spend PPP funds in order to obtain forgiveness, has been extended to 24 weeks for current PPP borrowers, rather than the original 8 weeks.
• All spending must be completed by December 31, 2020 to be eligible for loan forgiveness.
• The extended “covered period” is intended to make it easier for borrowers to reach full loan forgiveness. It also allows borrowers more flexibility in determining a pay schedule.

Time to Restore Workforce Levels and Wages Extended:

• PPP loan borrowers now have until December 31, 2020 to restore their workforce and wages to pre-pandemic levels in order to achieve full loan forgiveness. The previous deadline to restore wages and workforce was June 30, 2020.
• This allows PPP loan borrowers more time to restore its workforce and wage levels, as many businesses are still impacted by COVID-19 related restrictions. Failure to restore borrowers’ workforce and wage levels to pre-pandemic conditions will result in reductions in loan forgiveness. 

New Exceptions for Borrowers that Cannot Restore Workforce Levels:

• The PFA also provides new exceptions for borrowers that cannot restore business operations to pre-pandemic conditions due to COVID-19 operating restrictions, or if the borrowers cannot find qualified employees by December 31, 2020. These borrowers will not be subject to loan forgiveness reductions.

Payroll Percentage Allocation Updated:

• The PFA now requires that only 60% of PPP loan funds be used for payroll expenses. Under the former rules, 75% of the PPP loans were required to be expended on payroll costs.
• It is important to note however, that failure to spend 60% of loan funds on payroll expenses will completely prevent the borrower from receiving loan forgiveness. This is different from the former rules, which only reduced the amount of loan forgiveness for failing to spend 75% of loan monies on payroll costs. The new rules implement a complete forgiveness cut-off.
• Borrowers should consider spending slightly above the 60% payroll threshold (or more) to avoid loan forgiveness discrepancies.

Loan Repayment Term Extended:

• With respect to any loan balance remaining after loan forgiveness has been applied, current PPP loan borrowers can extend the term note from 2 years to 5 years if the lender and borrower agree.
• New PPP loan borrowers will automatically have 5 years to repay the PPP loan.
• Payments on the PPP loan will not become due until the date on which the SBA makes a determination on the borrower’s forgiveness application. 

Interest Rate:

• The PPP loan will continue to carry a 1% interest rate for new and current borrowers.

If you have questions regarding the Paycheck Protection Program, or for assistance in ensuring that you are taking full advantage of the Paycheck Protection Program forgiveness process, contact the attorneys at Rock Fusco & Connelly, LLC. We can be reached via email at info@rfclaw.com, or by phone at (312) 494-1000.