On June 5, 2020, President Trump signed into law the Paycheck Protection Flexibility Act (the “Flexibility Act”), which amends the CARES Act and the Paycheck Protection Program (“PPP”) to provide greater flexibility to PPP loan recipients. The major changes that the Flexibility Act made to the administration of the PPP and the terms of PPP loans include, without limitation, the following:
Covered Period: The Flexibility Act extends the original eight-week “covered period” – the period during which the proceeds used to pay eligible expenses may be forgiven – to the earlier of (a) twenty-four weeks following the loan’s origination and (b) December 31, 2020. A PPP loan recipient that received the loan before the enactment of the Flexibility Act may elect to keep the eight-week covered period.
Non-Payroll Cost: Before the enactment of the Flexibility Act, in order to receive loan forgiveness, a PPP loan recipient must use at least 75% of the loan proceeds for payroll costs and the remaining for payment of other eligible non-payroll costs, including covered rent obligations, covered utility payments and interest on covered mortgage obligations. The Flexibility Act expands the limit on non-payroll costs to 40%, and therefore, the minimum percentage of the loan proceeds that a PPP loan recipient is required to use for payroll costs is reduced to 60%.
Maturity Date: The Flexibility Act extends the maturity date of PPP loans to a minimum of five years for the PPP loans made on or after June 5, 2020. With respect to the PPP loans made before June 5, 2020, the maturity date may be extended by mutual consent of the lender and the borrower.
Repayment Deferral: Prior to the enactment of the Flexibility Act, a PPP loan recipient was permitted to defer the payment of principal and interest on the PPP loan for six months. The Flexibility Act extends the deferral period to the date that the lender receives the forgiveness amount from the Small Business Administration. If a PPP loan recipient fails to apply for loan forgiveness within ten months after the expiration of the covered period, then the recipient must start making repayment of the loan upon the ten-month anniversary after the expiration of the covered period.
Payroll Tax Deferral: The Flexibility Act allows all borrowers, not just borrowers who have not received PPP loan forgiveness, to defer their employer payroll taxes in accordance with the CARES Act.