On Friday, June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act of 2020 (the “Act”) into law. Aptly named, the Act allows more flexibility in the use of PPP loan funds. The Act automatically applies to new PPP loans. However, borrowers with existing PPP loans may negotiate the terms of their loans with their respective lenders to mirror the language of the Act.
Changes to the Program
The biggest changes effectuated by the Act are (1) the length of the time allowed to use PPP funds (the “Covered Period”) and (2) the use of PPP funds. The Act extends the Covered Period from eight (8) weeks from the loan origination date to the earlier of twenty-four (24) weeks from the loan origination date or December 31, 2020. Borrowers who already have a PPP loan may choose keep the eight (8) week period or they may opt for the twenty-four (24) week period.
The Act also allows borrowers to use at least sixty percent (60%) of the PPP funds for payroll costs and forty percent (40%) of the funds for non-payroll costs such as mortgage interest payments, rent, and utilities. This differs from the original language of the CARES Act which required seventy-five percent (75%) of the funds to be used on payroll costs and the remaining twenty-five percent (25%) to be used on non-payroll costs. If a borrower uses less than sixty percent (60%) of the funds on payroll costs, it will still be eligible for forgiveness. However, the amount of non-payroll costs eligible for forgiveness will decrease proportionally with the percentage used for payroll costs.
The Act makes other changes to the original language of the CARES Act. First, it allows for loan forgiveness without regard for a reduction in full time equivalent employees where the borrower can, in good faith, show (1) an inability to rehire individuals who were employees on February 15, 2020 and an inability to hire similarly qualified individuals on or before December 31, 2020 or (2) an inability to return to the same level of business activity at which the business was operating before February 15, 2020 due to guidelines put in place related to COVID-19.
Second, the Act changes the maturity timeline for any balance not forgiven. The original CARES Act language set forth a maximum maturity of 10 years from the date of loan forgiveness application. The Act changes this language to state that “the covered loan shall have a minimum maturity of five (5) years and a maximum maturity of ten (10) years…”
Finally, the Act extends the loan deferral date to the date any determined forgiveness amount is remitted to the lender. If a borrower does not apply for forgiveness, the loan will be deferred for ten (10) months from the last day of the borrower’s Covered Period.
For questions regarding the Paycheck Protection Program or any subsequent published guidance, please contact DBL Law attorneys Patrick Hughes (phughes@dbllaw.com) or Katherine Simone (ksimone@dbllaw.com).
