On Wednesday, June 3, the Senate passed The Paycheck Protection Flexibility Act of 2020 that will ease requirements on Paycheck Protection Program (PPP) funds for small businesses. The legislation aims at further helping small businesses sustain operations during the COVID-19 pandemic. The President is expected to sign the Act.
The Act tailors the current PPP program requirements for businesses which have struggled with the complexity and rigidness of the PPP. The amendments include:
- Lowering the amount of funds required to be used on payroll from 75% to 60%. The remaining 40% must be used on utilities, rent, and other eligible expenses.
- Elect to extend the loan forgiveness coverage period from 8 weeks to 24 weeks
- Extending the repayment period, if not forgiven, from two to five years
- Allowing payroll tax deferment for PPP recipients
- Extending the June 30 rehiring deadline to December 31 and providing additional exceptions to employee availability
Except for the extended repayment period, all amendments are effective as if included in the CARES Act and shall apply to any loan made pursuant to the Paycheck Protection Program from the SBA. However, the Act does not prohibit lenders and borrowers from mutually agreeing to modify the terms to conform with the Act.
The Act notably does not address deductibility of expenses paid with PPP funds that are forgiven. Under current guidance, these expenses remain non-deductible. Documentation is still a critical factor, and all applicants should take time to fully understand the impact of these changes, as well as the most recent guidelines provided on the forgiveness applications. In addition, the Senate’s intention is for the current PPP program to expire, and issue no additional loans after June 30, 2020.
Many small businesses have struggled with retaining employees due to increased unemployment benefits and delayed reopening with extensions of local stay at home orders. By reducing non-payroll related cost requirements and extending the coverage period to utilize the funds, small businesses with high rents, high utility costs, and staffing issues, will have a better chance of weathering the pandemic.