PPP Flexibility Act Amends Loan Forgiveness Regs

Another new bill called the PPP Fexibility Act provides greater flexibility for PPP loan borrowers to receive loan forgiveness.



Update: On June 17, 2020, the SBA released two “borrower-friendly” updates to the PPP loan forgiveness application to reflect changes made to the program by the PPP Flexibility Act. See the latest revised standard version and instructions.

There was also a new three-page “EZ” version released for borrowers who (i) are self-employed, or (ii) did not reduce wages by more than 25 percent and did not reduce the number or hours of their employees, or (iii) experienced reductions in business activities as a result of health directives related to COVID-19 and did not reduce wages by more than 25 percent. See the latest EZ application and instructions. On June 5, 2020, President Trump signed the Paycheck Protection Program (PPP) Flexibility Act of 2020. This bill provides further clarification and greater flexibility for borrowers to have their PPP loans forgiven.

Here’s a quick summary of what’s included in this follow-up legislation:

  • Payroll costs vs. nonpayroll costs— For forgiveness eligibility, this bill reduces the portion of PPP funds that must be spent on payroll costs from 75% to 60%. With this adjustment, the nonpayroll cost limitation is now 40%.
  • Covered period extension—Previously, borrowers had 8 weeks to spend their eligible loan amounts to receive forgiveness. The PPP Flexibility Act extends the covered period to 24 weeks from the date of loan origination.
    • Small businesses can still elect the 8-week period if they so choose and apply for forgiveness now rather than wait for the 24-week period to expire.
  • Extension of rehiring safe harbor—Previously, the program indicated that if any employees had been laid off between February 15, 2020 and April 26, 2020, the employer would have until June 30, 2020 to bring back those employees at the same wage level as before to receive rehiring safe harbor. However, this bill extends the rehiring period by six months (Dec. 31, 2020) to achieve safe harbor. Now borrowers have additional time to restore payroll levels or rehire employees without facing a reduction in the amount of forgiveness for which they are eligible.
  • Loan repayment terms extended to 5 years. Originally, any unforgiven PPP loan amounts had to be paid within two years. The PPP Flexibility Act extends the minimum loan term for unforgiven PPP loans to five years.

In addition to the provisions above, this bill provides PPP loan forgiveness eligibility exemptions for borrowers that are not able to rehire an employee or a replacement worker. There are also exemptions for borrowers that are not able to return to the same level of business due to complying with COVID-19-related orders or circumstances.

The PPP Flexibility Act also amends an original provision of the CARES Act that exempted employers from deferring their share of social security taxes. Employers who receive PPP loan forgiveness can now also defer the employer share of social security taxes, with the requirement to pay 50% of deferred taxes by December 31, 2021, and the remaining 50% of deferred taxes by December 31, 2022.

For questions about your PPP loan, please contact your lender. We’ll continue to monitor and update any additional developments regarding PPP loan forgiveness. For more information about the PPP, please contact your certified HR expert.

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