What You Need To Know About They Paycheck Protection Program Flexibility Act

In June 2020, the Paycheck Protection Program Flexibility Act (PPPFA) was signed by the president. PPPFA modifies the Paycheck Protection Program (PPP), allowing smaller businesses to stay qualified for loan forgiveness, at the same time giving them more freedom to decide how they want to spend the funds loaned. This implementation came as a response to the coronavirus pandemic. There are many details to the PPPFA which make it complicated, and smaller businesses can expect the Small Business Administration (SBA) to be forthcoming with additional advice. For more guidance on PPPFA, you may book a consultation with our attorneys.

Differences in The PPP and The PPPFA

For small businesses with less than 500 employees, the PPP mandated these businesses to spend at least 75 percent of any forgiven amount on payroll costs. With the provisions amended in the PPPFA, businesses now have to spend only 60 percent on payroll, giving businesses the freedom to spend more on other overhead expenses as up to 40 percent of the loan is allowed to be used for payments on utility, rent, or mortgage interest. This change was implemented in response to complaints that payroll costs had dropped following the retrenchment of employees, but fixed costs such as rent still remained high.

Previously under PPP, employers had eight weeks to spend the funds from their PPP loan. However, under PPPFA, this period has been extended to 24 weeks (till December 31, 2020). This allows businesses to use the loan to cover business reopening expenses. PPPFA has also extended the repayment period for parts of the loan that has yet to be forgiven from 2 years to 5 years, whilst retaining the original interest rate of 1 percent. At the same time, the deadline to rehire workers has been extended to December 31. Hence, the new deadline to enjoy the extended period to restore the workforce is December 31, as compared the June 30 under PPP.

Application Deadline Extended Under PPPFA

The deadline to apply for the Paycheck Protection Program loan has been extended from June 30,2020 to August 8, 2020, giving businesses more time to apply for it. 

A total of $134 billion PPP funds are made available again after the application process halted on June 30, 2020. Congress will have more time to consider ways to re-appropriate any leftover fund when the application ends on August 8. Discussions on any additional funding during Phase 4 for small businesses will also ensure at the same time.

Guidelines for Exceptions Under PPPFA

Under the PPPFA, there exists two exceptions that allow businesses to get full forgiveness even in cases where they are unable to restore their workforce fully. These come on top of previous guidelines that permit companies’ exclusion of workers who have rejected re-employment offers. Businesses may also choose to cut down on requirements of the workforce if they are unable to find employees that are qualified, or if they could not resume company operations due to restrictions of the coronavirus pandemic.

PPPFA’s Additional Stipulations

Repayment period for PPP loans has been extended under PPPFA, where borrowers can take 5 years instead of 2 to repay the loan. The interest rate for the loan remains at 1 percent. Under this provision, borrowers have more time to repay any part of the loan that has not been forgiven.

The time frame for payment deferment has also been extended from six months till the date the loan forgiveness amount has been sent to the lender by the SBA. If forgiveness is not applied for by borrower, the period for deferral lasts up to 10 months after the covered period ends. This is a guideline issued by SBA in June 2020.

Furthermore, payment of payroll taxes can be delayed by businesses who had taken up a PPP loan. Previously, this was not permitted under the CARES Act. With all these additional guidelines and exceptions, it should make businesses’ reopening a smoother one, and provide relief for many borrowers who were previously under the PPP loan. However, PPPFA is a complicated provision with many details. If you have any questions about the PPPFA, you can contact us for a consultation with our attorneys.

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