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Paycheck Protection Program Flexibility Act of 2020 Brings Major Changes

Paycheck Protection Program Flexibility Act of 2020 Brings Major Changes

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The Paycheck Protection Program Flexibility Act of 2020 will bring some major changes to the Paycheck Protection Program (PPP). The bill, which has passed the Senate and House, now heads to the president for his signature.

You can read the full bill here.

What’s New in the Paycheck Protection Program Flexibility Act of 2020?

Coverage Period Extended

Currently, the PPP requires borrowers to spend funds in an eight-week period following the award of the loan. New changes under the PPP Flexibility Act will extend the loan forgiveness period from eight weeks to 24 weeks (or up until December 31, 2020). While borrowers can still keep the original eight-week period, this additional flexibility aims to make it easier for more borrowers to reach full forgiveness.

Payroll Expenditure Requirement Changes

While borrowers were originally required to spend 75% of their PPP loan on payroll costs, the payroll expenditure requirement drops to 60% under the PPP Flexibility Act. This will allow borrowers to allocate more of their loan funds to non-payroll expenses, like utility costs and rent payments.

It’s worth noting that the original version of the PPP allowed borrowers to reduce the amount eligible for forgiveness if they used less than 75% of the funds on payroll costs. Under the PPP Flexibility Act, if a borrower doesn’t spend at least 60% of funds on payroll costs, then none of the loan will be forgiven.

Restoring Your Workforce

Due to the extended 24-week forgiveness period, a borrower now has up until December 31, 2020 to rehire employees to the pre-pandemic levels required for full loan forgiveness.

Despite this, the PPP Flexibility Act includes new exceptions for employers who don’t fully restore their workforce. The Small Business Administration has already provided guidance on what businesses should do regarding employees who don’t want to be rehired. The new bill further allows borrowers to adjust if they can’t find qualified employees to hire or are unable to restore their business to normal business operations due to COVID-19 related operating restrictions.

Loan Repayment Extension

Under the new bill, borrowers will have five years to repay the loan instead of two years.

Delaying Payroll Tax Payment

The PPP Flexibility Act will allow PPP recipients to qualify for a separate tax credit to defer payroll taxes, which was originally prohibited under the CARES Act.

Read More About the PPP

COVID-19 updates

Published on June 04, 2020