Paycheck Protection Program Flexibility Act (PPPFA) brings updates for small business borrowers

If you are in charge of one of the nearly 5 million American companies that has received funds as part of the Paycheck Protection Program (PPP) or you are still planning to apply for a PPP loan, it’s important to be aware of the significant updates and changes to the program that come as part of the Paycheck Protection Program Flexibility Act (PPPFA), signed into law on June 5, 2020.

  • First of all, if you are interested in applying for PPP funds and have not yet done so, new applications are being accepted again as of July 6, 2020, through August 8, 2020.
  • Loan recipients now have 24 weeks instead of 8 to spend loan proceeds and still be eligible for forgiveness.
    • While this period has been extended, recipients are still able to apply for forgiveness starting at 8 weeks after receipt of funds.
  • PPP proceeds are still calculated off of your business’s payroll expenditure and, as before, the funds are intended to be applied primarily to your payroll to, although the qualification for forgiveness has been reduced from 75% of funds spent on payroll to 60%.
    • Eligible expenses for the remaining portion of the loan remain the same (rent, mortgage interest, utilities); however, a new requirement that comes as part of PPPFA is that if 60% or less of the loan is spent on payroll, none of the loan will be eligible for forgiveness, and will revert to the repayment terms, below.
  • The portion of the loan that is not eligible for forgiveness will still be subject to a 1% interest rate, but the repayment term for loans issued after June 5, 2020 has been increased from two to five years. Loans issued prior to June 5, 2020, will still have a maturity of two years, although borrowers and lenders may mutually agree to modify the maturity terms to conform with the PPPFA.
  • Additionally, the deferral period for PPP loan repayment has been increased to six months after the SBA makes their forgiveness determination.
    • Currently, your PPP lender has 60 days to make their initial forgiveness determination, after which point the SBA has an additional 90 days to accept or adjust the lender’s determination. It’s only after this point that the 6-month deferral begins.
  • PPPFA also extended the deadline to rehire workers and still have their salaries qualify for forgiveness, from June 30, 2020 to December 31, 2020. It also introduced a couple exceptions to this requirement, although it’s worth noting that documentation will need to be provided to demonstrate that good-faith, written offers to rehire workers were declined.
    • The exemptions include the inability to rehire a similarly qualified employee prior to the deadline OR an inability to return to the same level of business activity as prior to February 15, 2020 due to compliance with COVID-related restrictions.

As guidelines are regularly being clarified, for the most up-to-date guidance on PPP expectations/best practices borrowers should reach out to their lenders.

Mark Khazanovich is the director of operations at KORE Accounting Solutions, a future-focused management accounting firm specializing in providing legal professionals and business owners with the data and insights they need to stay compliant and run more profitable businesses.

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