Nonprofits and businesses with forgivable loans through the CARES Act’s Paycheck Protection Program (PPP) can rest a little easier, thanks to the Paycheck Protection Program Flexibility Act of 2020. On June 5, 2020, President Trump signed into law significant modifications to the CARES Act, shortly after the U.S. Senate’s unanimous approval. These modifications provide extensions and other relief to current and prospective PPP loan recipients, including timing and operational aspects as follows.
- The covered period for new borrowers is expanded from eight weeks to twenty-four weeks, for loan forgiveness eligibility. Current borrowers similarly enjoy an extension of the eight-week period to twenty-four weeks, at the discretion of the borrower. In no case may the covered period extend beyond December 31, 2020. This adjustment will allow businesses to spread loan proceeds over a longer period of time to account for slow re-opening and slowly increasing operation, and to prevent simply re-furloughing employees after eight weeks.
- The PPP Flexibility Act eliminates the reduction in loan forgiveness for failure to re-hire furloughed employees prior to December 31, 2020, provided that employers document an inability to hire their previous employees or similarly qualified employees. The reduction in loan forgiveness is also eliminated for recipients that document their inability to return to previous operational levels due to compliance with COVID-19 requirements and guidance (sanitation, social distancing, safety, etc.).
- New loan maturity has expanded from two years to five years. For existing PPP loans, borrowers and lenders may mutually agree to later maturity. This element only applies to organizations not receiving loan forgiveness, and it accounts for what will likely be a significant time before full recovery and thus a return to previous profitability.
- The amount of loans required to be spent on payroll costs is now reduced from 75% to 60%. This accommodation helps organizations for which their payroll costs do not represent 75% of expenses. Notably, this modification precludes any loan forgiveness if the amount spent on payroll costs is below 60%, whereas the original provision proportionately reduced the amount of forgiveness available for businesses spending less than 75% on payroll.
- PPP participants are now eligible for employer payroll tax deferral, under Section 2303 of the CARES Act Sec. 2302. This relief will provide access to an additional source of cash for qualifying organizations.
These modifications provide welcome financial assistance to qualifying organizations affected by COVID-19, especially as nonprofits, businesses, and individuals continue the long “winter” of operational and economic recovery.