What is the PPP Flexibility Act of 2020? I Seattle Real Estate Podcast

What is the PPP Flexibility Act of 2020?
The Paycheck Protection Program Flexibility Act of 2020, signed into law by President Trump June 5, 2020, amends the Paycheck Protection Program (PPP) to give borrowers more freedom in how and when loan funds are spent while retaining the possibility of full forgiveness.

KEY TAKEAWAYS:
- The PPP Flexibility Act amends the Paycheck Protection Program to give borrowers more time to spend loan funds and still obtain forgiveness.
- Borrowers now have 24 weeks to spend loan proceeds, up from 8 weeks.
- The Act also reduces mandatory payroll spending from 75% to 60%.
- Two new exceptions let borrowers obtain full forgiveness even without fully restoring their workforce.
- Time to pay off the loan has been extended to five years from the original two.
- The Act now lets businesses delay paying payroll taxes even if they took a PPP loan.

Understanding the PPP Flexibility Act of 2020:
Under previous PPP loan guidance, borrowers had eight weeks from the time they received the first loan installment to spend the funds. The PPP Flexibility Act of 2020 lets them extend that period to 24 weeks (but not beyond Dec. 31, 2020). They also have the option to keep the original eight-week spending period if they already had their loan before enactment of the Act. Under the new timeline, full forgiveness is still possible.1

The original PPP loan guidelines mandated that 75% of the amount forgiven had to be spent on payroll costs and up to 25% on other costs. The Flexibility Act reduces required payroll expenditures to 60% or more of the amount forgiven with up to 40% of the forgiven portion used for mortgage interest, rent, or utility payments.

For full loan forgiveness, the borrower must spend 60% or more of the entire loan amount on payroll and the balance on mortgage interest, rent, or utility payments. These changes reflect complaints from many businesses that their payroll costs went down as employees were laid off but fixed costs like rent did not.

Borrowers can now use the new 24-week covered period to restore their workforce to pre-COVID-19 levels in order to obtain full forgiveness. In no case can the covered period go beyond Dec. 31, 2020.

Two new exceptions let borrowers achieve full forgiveness even if they don't fully restore their workforce. These are in addition to previous guidance that let companies exclude workers who turned down good-faith offers of re-employment. Borrowers can now also reduce workforce requirements based on the inability to find qualified employees or if they were unable to restore operations to Feb. 15, 2020, levels due to COVID-19 restrictions.

The PPP loan repayment period has been extended to five years from the original two while retaining the original 1% interest rate. This gives borrowers more time to pay off the unforgiven portion of their loan.

The payment deferral period (principal, interest, fees) is now extended from six months after the end of the covered period to the date the SBA sends the borrower's loan forgiveness amount to the lender. If the borrower does not apply for forgiveness, the deferral period lasts until 10 months after the end of the covered period according to guidance issued by the SBA June 8, 2020.2

Finally, the PPP Flexibility Act of 2020 lets businesses that took a PPP loan also delay paying their payroll taxes. This was not allowed under the original CARES Act.1

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