New Law Will Modify PPP Loan Repayment and Forgiveness Requirements

The Paycheck Protection Program Flexibility Act of 2020 was signed by President Trump on June 5, 2020 and will allow borrowers more flexibility when it comes to the Paycheck Protection Program (PPP).

The measure gives existing and new PPP borrowers additional options and protections regarding loan repayment and forgiveness.  Some of the key changes include:

  • Changing the timeframe to spend funds for loan forgiveness purposes from eight weeks to 24 weeks after loan origination or until December 31, 2020, for new borrowers;
  • Giving existing borrowers the option to extend their window to spend funds on qualified payroll and non-payroll expenses for forgiveness purposes from eight weeks to 24 weeks;
  • Reducing the percentage of loan funds a borrower must spend on qualified payroll expenses to obtain loan forgiveness from 75 percent to 60 percent. However, the original PPP rules allowed partial forgiveness if a borrower did not meet the 75 percent standard. The new law changes that if a borrower does not reach the lower 60 percent threshold, now their entire loan is ineligible for forgiveness;
  • Extending the maximum loan repayment timeframe from two to five years, while maintaining the one percent interest rate;
  • Allowing borrowers until December 31, 2020, to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness;
  • Permitting loan recipients to exclude position(s) from their full-time employee count for forgiveness purposes if they either: (1) cannot find a qualified replacement employee, or (2) cannot restore their business to its economic status as of February 15, 2020, due to the impact of COVID-19; and
  • Allowing PPP loan recipients to delay payment of their payroll taxes over the next two years like other businesses. Previously, the CARES Act prohibited that for PPP recipients.

We expect the Small Business Administration will issue new regulations to implement these legislative changes soon. As more details become available, we will advise.

Princeton HR does not provide financial, legal, tax advice; the above is for informational purposes only.