On June 5, 2020, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law to provide additional relief to Paycheck Protection Program (PPP) participants. Among the changes addressed by the PPPFA are the following:
1. The share of loan proceeds that is to be allocated for payroll expenses is now 60% vs initial 75%, thus, freeing up 40% of the loan proceeds for rent, utilities and mortgage interest. This change is aimed to help small businesses operating in high rent areas.
2. Time period to use the loan funds is extended from 8 to 24 weeks. This is a much-needed relief for small businesses many of which were partially or fully shut down during the lockdown and were unable to use the funds during the previously required 8-week period. The businesses can request forgiveness of the loan anytime between the 8-week and 24-week period.
3. The deadline to rehire workers for loan forgiveness is extended from June 30 to December 31, 2020. This provision gives small businesses extra time to restart their operations and rehire employees. Given that some jurisdictions are still at initial stages of reopening, the extension brings the timing of rehiring more in line with the actual reopening of certain sectors of economy and alleviates the pressure to rehire in order to qualify for the loan forgiveness while businesses are still closed.
4. Rehire/retention requirements are alleviated. According to the initial PPP loan forgiveness requirements, the borrower needed to retain the average monthly number of full-time equivalent employees from February 15, 2020 through June 30, 2020 that was equal or more than the average monthly number of full-time equivalent employees during the period used to determine the maximum loan amount. The only exemption was if the employer could document in writing an attempt to rehire an employee who rejected this offer.
PPPFA provides important changes to the rehiring requirements. In addition to extending the rehiring date to December 31, 2020 (see #3), it includes the following exceptions for fewer hires in order to still qualify for loan forgiveness:
a. The business is unable to rehire an individual who was an employee on or before February 15, 2020;
b. The business is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
c. The business is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.
There is still lack of clarity in regard to #b and #c requirements, so further guidance is expected to provide the clarifications.
5. The repayment term of the loan is extended from 2 to 5 years.
Overall, the PPPFA addresses a lot of concerns associated with the initial rollout of the program. It provides further relief to small businesses navigating their way in the new economic reality.