The Senate just approved the Paycheck Protection Program Flexibility Act. The Bill, which was passed by the House on May 28th, will ease many of the restrictions on how businesses must use PPP funds in order to have their loan forgiven.

In addition to extending the deadline to apply for a PPP loan from June 30th to December 31st, the Flexibility Act made achieving loan forgiveness easier in the following ways:

  • Congress extended the period over which businesses must use loaned funds for qualified expenses, from 8 weeks to 24 weeks. Those who received loans prior to this Bill may keep the current 8-week time period.
  • The Bill removes the requirement that at least 75% of PPP funds be used for payroll costs. Instead, 60% must go to payroll costs, and the remaining 40% of loan funds may be spent on mortgage/rent payments or utilities.
  • Previously, businesses that were forced to lay off employees, or reduce their salary by more than 25%, between February 15th and April 26th had until June 30th to hire them back, or restore their compensation level, to qualify for full loan forgiveness. The Bill now gives employers until December 31, 2020 to restore their workforce without penalty.
  • Businesses that can document their inability to fully restore their workforce by December 31st, or their inability to return to the same level of business activity because they were complying with Federal COVID-19 safety, sanitization or social distancing guidelines.

Other modifications made under this Bill include changing the minimum loan maturity period from 2 years to 5 years, for loans that will not be forgiven. Also, borrowers may defer loan payments (interest and principal) until the amount of their loan forgiveness is paid by the SBA to the lender. Businesses that do not qualify or apply for loan forgiveness may defer payments for 10 months after the program expires.

Another significant provision of the Flexibility Act is that it allows companies that took a PPP loan to be eligible for payroll tax deferral under the CARES Act. This provision allows taxpayers (including the self-employed) to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021 and the other at the end of 2022.

Unfortunately, one issue the Flexibility Act did not address is the deductibility of business expenses paid for with PPP loan funds. It is not clear whether this was an oversight, or whether lawmakers are assuming the eventual passage of the HEROS Act, which provides a fix to this issue.

At Rockbridge we have been helping our small business clients navigate this ever-changing regulatory landscape. Continue to check back in for updated information, or reach out to a Rockbridge advisor for help.