PPP Changes: New Timelines and Forgiveness Measures

June 9, 2020

The Paycheck Protection Program Flexibility Act (PPPFA) was signed into law on June 5 extending the time allowed for businesses to spend Paycheck Protection Program (PPP) loan proceeds and providing new forgiveness measures.

The PPP was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27. The PPP created a loan program through the Small Business Administration (SBA) to enable businesses and nonprofit organizations with 500 or fewer employees to obtain federally guaranteed loans to be used for payroll, rent, utilities and other specified costs. PPP loans can be 100 percent forgivable if employers maintain specified employment and wage levels, as measured by the number of full-time equivalent employees and wage levels over an eight-week “covered period.”

Businesses do not need to pay interest on PPP loan amounts forgiven, and forgiven amounts are not considered federal taxable income to the business. As of May 30th, the SBA reported that more than 4.4 million PPP loans have been made since the program began on April 3, with over $510 billion disbursed.

Key changes include:

  • Amending the PPP's loan maturity provision to five years. While the CARES Act allowed for a maximum loan maturity date of 10 years for PPP loans, the SBA and the U.S. Department of Treasury set maturity at two years during the initial rulemaking. While technically this only applies to new PPP loans made after June 4, lenders can modify their existing loan terms.
  • Extending the period for spending PPP funds to Dec. 31, 2020. Originally, the PPP rules required borrowers to spend loan funds by June 30, 2020, to be forgiven.  
  • Increasing the forgiveness period from eight weeks to 24 weeks after the disbursement of the loan or Dec. 31, 2020, whichever is earlier. This change gives businesses more time to spend funds and still get forgiveness, which is helpful for businesses that were closed.
  • Stretching the timeframe to rehire employees and restore compensation levels to Dec. 31, 2020, before a borrower's eligibility for forgiveness is reduced. Under the CARES Act, a business would lose a percentage of loan forgiveness if they reduced the number of full-time equivalent (FTE) employees or the compensation of one or more employees between Feb. 15, 2020, and April 26, 2020. Borrowers could avoid this reduction in forgiveness if they restored the number of FTEs or compensation by June 30, 2020.
  • Addressing an employee's refusal to be rehired by adding a new exemption for borrowers that can document (1) an inability to rehire the individuals employed by Feb. 15, 2020, and (2) an inability to hire "similarly qualified" employees for unfilled positions on or before Dec. 31, 2020.
  • Adding a new exemption for businesses that can document an inability to "return to the same level of business activity" that the business experienced before Feb. 15, 2020, "due to compliance with the requirements established or guidance issued" by certain federal agencies from March 1, 2020, to Dec. 31, 2020, "related to the standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19."
  • Revising the 75/25 requirements so at least 60% of PPP funds must be used for payroll costs for the borrower to be eligible for any loan forgiveness. The remaining 40% may be used for other allowable uses, such as qualified payments for mortgage interest, rent or utilities. If a borrower does not use at least 60% for payroll costs, the borrower is not eligible for any loan forgiveness.
  • Expanding payroll tax deferment eligibility to PPP borrowers: The CARES Act excluded borrowers who received loan forgiveness under the PPP from being able to defer employer payroll taxes. The PPPFA eliminates this exclusion.
  • The PPPFA also allows employers that receive PPP loan forgiveness to continue deferring payment of the employer share of the Social Security tax under CARES Act (Section 2302) through December 31, 2020. The original PPP prohibited employers from deferring employer Social Security taxes after any portion of the PPP loan was forgiven. Deferred employer Social Security tax amounts will be due in two equal payments in December 2021 and 2022.

These changes, along with guidance from the Interim Final Rule on PPP loan forgiveness, will be discussed during the ALTA Insights webinar "How to Plan for PPP Loan Forgiveness," which will be held from 1:00-2:00 p.m. ET, June 10. Register today.

Contact ALTA at 202-296-3671 or communications@alta.org.