President Trump signed the Paycheck Protection Program Flexibility Act (H.R. 7010), legislation advocated by the Insights Association, into law on June 5, 2020. It improves the ability of small businesses to utilize the Small Business Administration (SBA)'s Paycheck Protection Program (PPP) loans to offset the impact of the COVID-19 crisis.

IA endorsed the Act (and its Senate counterpart) and urged Congress to pass it.

H.R. 7010 passed the House by a 417-1 vote on May 28 and the Senate by voice vote on June 4. It is now Public Law No. 116-142.

Thanks to the Paycheck Protection Program Flexibility Act, the PPP loan forgiveness period is now extended to include costs incurred over 24 weeks after a loan is issued or through December 31, whichever comes first. Businesses that received a loan before the Act's enactment can keep the current eight-week period. The period in which loan recipients may gain forgiveness (by restoring staffing or salarly levels that were reduced between February 15 and April 27) was extended to December 31 (from June 30).

The amount of loan forgiveness will "be determined without regard to a proportional reduction in the number of full-time equivalent employees if an eligible recipient, in good faith":

  1. "is able to document-(i) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020"; or
  2. "is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19."

Business recipients of PPP loans must now spend at least 60 percent of the proceeds on payroll expenses to qualify for full loan forgiveness, instead of the prior 75 percent requirement. Up to 40 percent of proceeds may be used to pay "interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), any payment on any covered rent obligation, or any covered utility payment."

Companies were previously barred from deferring payroll tax payments if they received forgiveness for their PPP loans. That provision from the CARES Act has been repealed.

PPP loan recipients may now defer principal and interest payments on those loans until the SBA compensates lenders for any forgiven amounts, instead of the current six-month deferral period. Recipients that don’t apply for loan forgiveness will be given at least 10 months after the PPP loan program expires to begin payments.

The Paycheck Protection Program Flexibility Act establishes a minimum loan maturity period of five years after a recipient applies for forgiveness, instead of the SBA's prior two-year deadline. Although this extension applies to loans issued after the Act is signed, lenders and borrowers should be able to agree to extend current PPP loans.

This information is not intended and should not be construed as or substituted for legal advice. It is provided for informational purposes only. It is advisable to consult with private counsel on the precise scope and interpretation of any laws/regulation/legislation and their impact on your particular business.