The Paycheck Protection Program Flexibility Act of 2020 was signed into law by President Trump on Friday, June 5, 2020. The Act allows more freedom for borrowers in how and when loan funds are spent. It also allows for more flexibility with retaining the possibility of full forgiveness during the borrowing process. This Act is an amendment to the previous loan parameters set within the CARES Act which gave borrowers eight weeks from the time they received the first loan installment to spend the funds. The PPP Flexibility Act of 2020 now extends that period to 24 weeks. This Act will be in effect until December 31, 2020. For loans that were taken out prior to June 5, 2020, the option to keep the 8-week spending period is still in effect with full forgiveness still possible.
2 new exceptions present in the PPP Flexibility Act allow borrowers to achieve full forgiveness even if they don’t fully restore their workforce. Borrowers are now allowed to reduce their workforce and not suffer from ineligibility of total loan forgiveness. This is based on the inability of employers to find or rehire qualified employees to the original operating standards of their business prior to the impact of COVID-19 ( Feb 15, 2020).
The original interest rate of 1% has remained; however, the borrower now has 5 years instead of the previous 2 for repayment. This allows for more time for the borrower to repay the loan without an increase of the amount owed in interest. In addition to this, the deferment period is now extended from 6 months to the date the borrower is told the amount they are approved for their loan forgiveness. The payment deferment period includes the principal amount, interest, and fees. Lastly, something that was not included in the original CARES Act is the allowance of delay in paying their payroll taxes.
Key points of the PPP Flexibility Act of 2020:
- The PPP Flexibility Act amends the previous Paycheck Protection Program to give borrowers more time to spend the funds obtained through loan while retaining full loan forgiveness
- The spending length has increased from an 8-week period to 24 weeks
- The time to pay off the loan borrowed has been extended to 5 years from the original 2 that they first Act implemented
- 2 new exceptions let borrowers obtain full forgiveness even without fully restoring their workforce
- The act reduced mandatory payroll spending from 75% to 60%
- Businesses are now allowed to delay paying payroll taxes if they take out a PPP loan