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PPP Update: Flexibility Act Overview

Posted by James Kahn
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PPP Flexibility Act

On June 5th, President Donald Trump signed the Payroll Protection Plan Flexibility Act  (PPPFA) passed by Congress.  

The provisions on the PPPFA were made to help relax the limitations on the PPP.

Here are some key takeaways on the new provisions:

  1. The time period to use funds is extended from 8 to 24 weeks. 
  2. The amount of the loan needed to be spent on payroll is reduced from 75% to 60%. 
  3. The June 30 deadline to rehire workers is pushed to December 31st.
  4. The payback period was extended from 2 years to 5 years.
  5. New exceptions for headcount forgiveness. 

The time period to use funds is extended from 8 to 24 weeks. 

PPPFA extends the loan forgiveness period from 8 weeks to 24 weeks, or December 31, 2020 (whichever is earlier). 

This means two things:

  1. Small business owners who applies and gets the loan after June 5th automatically gets 24 weeks instead of 8 to spend the money. 
  2. Small business owners who has gotten the loan before this has the option to choose:  “I want to apply for forgiveness based on an 8 week period, or a 24 week period.”

The amount of the loan needed to be spent on payroll is reduced from 75% to 60%. 

You can now spend more on non-payroll related costs and still get forgiven. 

The original threshold of the PPP loan only allowed up to 25% of non-payroll costs to be forgiven. The PPPFA reduced the amount of the loan needed to be spent on payroll from 75% to 60%. Therefore, the amount of funds available for other expenses was increased from 25% to 40%.

Congress did not make any changes to the allowed expenses under the non-payroll expenses. Click here for more details on what payroll vs. non payroll costs you can use. 

The grey area we are still waiting for clarification on from the SBA comes down to the language of the bill...

“An eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs.”

The “shall” seems to imply that it creates what people are calling a 'cliff'- if you don't spend at least 60%, then you can't get any forgiveness for anything else.

The June 30th deadline to rehire workers is pushed to December 31st. 

The PPPFA replaced the original June 30th date to rehire and get full forgiveness. The deadline has now been extended to December 31st. 

The original PPP loan requirements states you can rehire by either the end of your loan or June 30th. The PPPFA has changed the timeframe to the end of your loan or December 31st

The payback period was extended from 2 years to 5 years.

Any money that is considered a loan was originally supposed to be paid back in two years after the loan period. 

It has now been extended to a five year loan, still holding the 1% interest.

New exceptions for headcount forgiveness. 

The legislation included two new exceptions for borrowers to get forgiveness related to achieving head count.

1. The PPPFA allows business owners to adjust if they were unable to find qualified employees.  If you couldn't find someone to fill the level of the person you're replacing, but you tried, you can count that as a head count

-->It doesn't say what the burden of proof is to show this. We suggest  keeping track of resumes and schedules of interviews to prove you tried to fill the qualified position. 

2. The PPPFA allows business owners to adjust if they were unable to restore headcount due to COVID related operating restrictions. If business owners tried to bring employees back into work, but physically were not able to in compliance with the federal requirements (due to shelter in place and stay at home orders) the loan still be forgiven.

We will continue to provide updates as they are announced. In the meantime, we've developed three tools to help you manage businesses financials...

Download The Crisis Toolkit! PPP Funding Analysis, Break-Even Scenario Planning, Cash Flow Forecasting

ToolKit (1)-2