What Is the Paycheck Protection Flexibility Act ?
And How it’s Changed the Paycheck Protection Program
When the Paycheck Protection Program (PPP) was signed into law under the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27th, 2020, the terms allowed small businesses and nonprofit organizations with 500 or less employees to have access to federally guaranteed loans that could be used to support payroll, rent, utilities, and a few other specified costs over an eight week time period from the beginning of the loan. The terms also required that 75% of the amount loaned must have been used on employee payroll in order for the loan to qualify as “forgivable” at the end of the 8 week period.
As of June 5th, 2020, these terms have been amended and signed into law as the Paycheck Protection Flexibility Act (PPFA). This developed as a rising need to accommodate the businesses that have struggled to spend the required amount of funds (75%) on payroll in just 8 weeks when many of those same businesses were or are still closed due to government mandates. The new PPFA changes now allow for expenditure of loan funds over a 24-week period, ending on December 31st, 2020 at the latest. The changes as addressed in the Paycheck Protection Flexibility Act and their effects on your business are explained below.
The period of coverage has been extended.
Now, instead of just 8 weeks of coverage for payroll, rent, utilities, etc., the loan is eligible for 24 weeks of coverage from the loan start date. This does NOT, however, automatically apply to already-existing PPP loans; borrowers must discuss necessary amendments of the terms of their loan with their lenders individually. Paycheck Protection loans must still be applied for by June 30th, 2020. This has not changed. The latest date that your 24-week period can end on is December, 31st 2020. Failure to apply for loan forgiveness within 10 months of the covered period will result in payments being due.
The percentage of the loan that must be spent on payroll has decreased.
The previous PPP guidelines said that 75% of the loan amount was to be spent on payroll in order for the loan to qualify for complete forgiveness. This amount has now decreased to 60%; however if this 60% is not reached, the entire amount of the loan will be deemed unforgivable. Under the previous loan terms, the borrower is required to reduce the amount forgivable if the 75% payroll threshold is not met, but forgiveness was not altogether eliminated. These are important factors to consider when deciding if you wish to keep the existing terms of your loan if you already applied, or if you wish to discuss amendments with your borrower under the new PPFA terms.
If you do not qualify for forgiveness, the repayment period has been extended.
Even though any loan forgiveness is off of the table if 60% of your loan amount is not applied towards payroll under the new PPFA terms, the period allowed for loan repayment has now been extended from two years to five years, and the interest rate still remains 1%. There are also new exceptions that allow borrowers to achieve loan forgiveness even if their full workforce is not restored within the allotted time. The previous PPP terms already allowed borrowers to exclude employees who turned down re-hire offers at the same hours and wages that they had pre-pandemic. Now the PPFA revisions also allow for adjustments if borrowers were unable to find qualified employees, or if businesses were unable to restore their operations to previous levels due to COVID-19 operating restrictions.
Payroll taxes can now be deferred even if you received a PPP loan.
Borrowers are now allowed to defer FICA payroll taxes for two years, even if they received a PPP loan. This will make half of the amount of payroll taxes due in 2021 and the other half due in 2022.
*Please remember that none of these amendments automatically apply to pre-existing PPP loans taken before June 5th, 2020. Revision of loan terms must be discussed with lenders.
NOTICE **THE JUNE 30TH APPLICATION DEADLINE STILL REMAINS IN AFFECT**
Need help determining the next steps financially for your business?
At Perry & Associates, it’s our business to support your business. That includes the various changes and challenges that have arisen with this pandemic. We are staying abreast of the constant stream of updates and alterations to business finance, lending and tax laws as they pertain to the COVID-19 crisis. We’re here for questions, support and practical assistance. Call us at (740) 373-0056 to be directed to any of the five regional offices we have throughout the Mid-Ohio Valley.