Potential Major Changes for PPP Loans to Enhance Flexibility

Pending signature from President Trump, H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020, has passed the House and Senate. Under this bill, businesses have more time to spend their Paycheck Protection Program (PPP) loans on qualifying expenditures.

Originally, loan recipients needed to spend their funds within eight weeks of receipt, which some business owners found to be too short of a time frame. Now, owners have 24 weeks to spend PPP dollars on qualifying expenditures to receive forgiveness.

Small businesses also felt pressed for time to rehire previously laid off staff members so they could qualify for loan forgiveness. The extra 16 weeks will help in that regard. Also related to payroll, the new legislation indicates only 60 percent of the forgivable loans must be used for payroll expenses; prior to this bill, businesses needed to spend 75 percent of those funds on payroll—a helpful decrease of 15 percent available for non-payroll related expenses. Businesses are able to spend the rest of the funds on expenses such as utilities, rent and mortgage interest. Although it provides more flexibility, businesses should be careful, as the 60 percent payroll costs threshold appears to be a cliff—if fewer than 60 percent of funds are spent on payroll, the loan cannot be forgiven.

The full-time equivalent (FTE) and wage reduction tests have also been extended: businesses that have had continued reduction in FTEs or wages now have until December 31, 2020, to restore (extended from June 30, 2020). If businesses are unable to restore FTEs due to availability of workers, or, if the business simply cannot resume in its prior form due to Covid-19 restrictions, the FTE tests provides an exception to forgiveness reductions.

In addition to PPP modifications, the bill also allows a PPP loan borrower to benefit from the FICA deferral allowed under Section 2302 of the CARES Act. This deferral allows PPP borrowers to defer payments of employer taxes due from the period March 27, 2020-December 31, 2020, requiring 50 percent of these taxes to be due by December 31, 2021, and 50 percent due by December 31, 2022.

We do expect more guidance related to this bill once it is signed into law, as it significantly changes several of the key components of the PPP program. We will continue to provide updates.

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