Paycheck Protection Program Flexibility Act

June 9, 2020

 
 

On June 5, 2020 the President signed the PPP Flexibility Act of 2020 modifying the Paycheck Protection Plan as it relates to loan forgiveness.  The short and sweet bill extends the loan period and modifies the rules for forgiveness.  Key takeaways are as follows:

  • The minimum maturity on the loan is extended from two years to five years.  The maximum maturity is 10 years although it would seem that the SBA would have to permit repayment beyond five years.

    • The 5 year payback period is effective for any loans made after the date of Enactment

    • For loans that already originated, borrowers and lenders can mutually agree  to modify the maturity terms of the loan to five years 

  • The interest rate set by the SBA on loans taken is 1%.  By statute the interest rate cannot exceed 4%. 

    • It is not clear if the interest rate on loans originating after enactment will continue to be 1% on five year repayment.

    • It is not clear if the  interest rate of 1% can be modified on existing loans whose maturity terms are renegotiated. 

  • Rather than six months from the loan's origination, the monthly repayment of the loan and interest commences with the date on which the determined amount of loan forgiveness is paid by the SBA to the lender 

    • Interest on the unforgiven portion begins to accrue from the date of origination. The distinction between origination and receipt of loan proceeds is unclear; origination could take place earlier.

    • Since repayment does not begin until after the loan forgiveness amount has been determined, there no longer appears to be an issue of having to true up the loan forgiveness to the amounts repaid.  

  • The deadline for submitting a loan application appears to remain June 30, 2020. 

  • The deadline for submitting for loan forgiveness appears to be 10 months after the last day of the covered period (approximately 69 -70 weeks or 15-16 months from loan origination).

    • The absolute latest date for applying for loan forgiveness appears to be October 31, 2021 or thereabouts. 

  • The covered period of expenses eligible for forgiveness is extended from eight weeks after the "origination" of the loan to the earlier of 24 weeks after the origination of the loan or December 31, 2020. 

    • The Statute continues to use origination and not loan receipts although the guidelines appear to refer to the loan receipts; it's not clear if there is a difference

    • This will allow those employers who have been or are reopening their businesses to use more for payroll.  

      • Since the payroll forgiveness period is now greater than (24 weeks), rather than less than (8 weeks)  the payroll period eligible for borrowing (2.5 months), assuming that payroll is maintained, all of the proceeds could be forgiven through payroll and no other qualifying expenses need to be tracked in calculating loan forgiveness. 

      • Employers who are ramping up have an additional 16 weeks to spend on payroll rather than just adding payroll and keeping employees idle. There is less of a need to stuff the payroll with bonuses, benefits etc 

      • It is still unclear as to whether bonuses need to be annualized and allocated to the covered period or if, provided they don't exceed $100k of annualized compensation per employee, can be counted in full

  • Employers no longer need to reduce the loan forgiveness by the reduction in Full-time Employee Equivalents ("FTEs") as long as they make a good faith effort to rehire the individuals in their employ on February 15, 2020 or hire similarly qualified employees for unfilled positions on or before December 31, 2020 or they are able to justify that the working environment does not permit them to rehire and remain in compliance with health and safety requirements due to COVID restrictions. 

    • It is unclear if they still must report declined offers of rehire to the State Unemployment Agency within 30 days as required under the current SBA regulations and guidance

  • The amount of other qualified expenses (rent, utilities, interest) that are eligible for forgiveness had been increased from 25% of the loan forgiveness to 40%.

    • This makes it easier for businesses with lower payroll expenses to obtain loan forgiveness through the payment of other qualified (fixed and recurring expenses).

  • The legislation provides no change to the formulas for payment of payroll or other qualified expenses and the alternative payroll period.

  • Employers can now defer their portion of payroll taxes irrespective of loan forgiveness. The bill strikes wording in the Cares Act that bars business owners who receive forgiveness on their PPP loans from deferring their payroll taxes incurred after the date of forgiveness. Taxes incurred in 2020 are to be paid in two installments: Half is owed by December 31, 2021, and the other half by December 31, 2022.

  • The legislation does not address the IRS position that expenses that qualify for debt forgiveness are not tax deductible.

Further clarification should be forthcoming. Please do not hesitate to contact us with any questions or concerns. www.pwcpa.com 212 605 3100

Perelson Weiner LLP Certified Public Accountants
299 Park Avenue, New York, New York 10171-0002