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.
 

Main Street Lending Program: An Unprecedented Move

 
The Coronavirus pandemic has forced some of the most unprecedented government actions that we’ve seen in decades. One of them being the Main Street Lending Program. Why so unique? Because this is the first time since the Great Depression that the Federal Reserve is lending to organizations outside of the banking industry. And it’s big news.
 
Of course, this type of news produces various conflicting opinions and interpretations of the program. Here we’ve attempted to simplify the information and provide answers to many of the questions we are receiving.
 

What is the Main Street Lending Program?

 
Bottom line, the Main Street Lending Program is a vehicle through which the Federal Reserve Bank of the United States will purchase a percentage of eligible loans that are given to small or medium businesses that have been negatively impacted financially by the coronavirus pandemic.
 
The Federal Reserve has allocated $600 Billion Dollars towards this initiative, and the U.S. Treasury has set aside $75 billion to offset potential losses due to the high-risk nature of this lending program.
 
Banks will be the actual lenders to the borrowing businesses, but the Federal Reserves will buy up to 95% of the cost of the loan to minimize risk to the banks themselves.
The loans terms will be for up to four years, below market rates, and payments can be deferrable for up to one year. The current minimum loan size is $500,000 and the current maximum loan size is $200 million.
 
In some cases, borrowers will be able to use the loan to refinance existing debt.
However, Main Street loans are not forgivable. Under section 4003(d)(3) of the CARES Act, the amount of a Main Street loan cannot be reduced through loan forgiveness.
The Federal Reserve will stop purchasing loan participations on September 30, 2020 unless it is decided that the program will be extended.
 

Who can Apply for a Loan through the Main Street Lending Program?

 
Eligible businesses must have either 15,000 employees or less or have had 2019 revenues of $5 billion or less. They also must have been established prior to March 13th, 2020.
 
Eligible businesses must be U.S. businesses created or organized in the United States (or under the law of the United States) with the majority of all operations and employees located within the U.S.
 
Borrowers must not have participated in the Primary Market Corporate Credit Facility (PMCCF), and they must not have received any prior support under section 4003(b)(1)-(3) of the CARES Act.
 
Non-profit organizations are not currently eligible at this time.
 
The goal of this program was to extend relief to medium-sized businesses who were in good financial standing before the COVID-19 pandemic, and have suffered due to local government stay-at-home and closure orders. More specifically, the targeted businesses seem to be those that fell between the PPP loans for small businesses and the large businesses that are able to sell bonds to the Federal Reserve corporate lending facilities.
 
To minimize risk and to increase effectiveness of the loan, the Federal Reserve wants to avoid lending to businesses that were in poor standing and at severe financial risk before the pandemic, and they also want to avoid lending to businesses that have maintained good financial standing despite the pandemic.
 

What are the Three Different Types of Loans through the Main Street Lending Program?

 
There are currently three different loan options under the Federal Reserve Main Street Program. Each of the three options adhere to the same exact eligibility rules and terms stated above. Other features, such as how the loan deals with the borrower’s already outstanding debt, differ between options.
 

Type 1: the MSNLF (Main Street New Loan Facility)

 
In this option, eligible lenders extend new loans to eligible borrowers ranging in size from $500,000 to $25 million. The maximum size of this loan cannot exceed four times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization when added to the borrower’s pre-crisis outstanding and undrawn available debt.
 

Type 2: the MSPLF (Main Street Priority Loan Facility)

 
In this option, eligible lenders extend new loans to eligible borrowers ranging in size from $500,000 to $25 million. The maximum size of this loan cannot exceed six times the Eligible Borrower’s adjusted 2019 earnings before interest, taxes, depreciation, and amortization when added to the borrower’s pre-crisis outstanding and undrawn available debt.
 
At the time of origination and at all times thereafter, the loan must take priority above all other loans or debt instruments that the borrower has, other than mortgage debt. Eligible borrowers may, at the time of origination of the loan, refinance existing debt owed to a lender that is not the lender for the Main Street Loan.
 

Type 3: the MSELF (Main Street Expanded Loan Facility)

 
With this option, lenders can increase an eligible borrower’s existing term loan. It is still a four-year term loan, but can range in size from $10 million to $200 million. The maximum size of the loan cannot exceed 35% of the borrowers existing outstanding and undrawn available debt, secured or unsecured. Conversely, when the loan size is added to the borrower’s existing outstanding and undrawn available debt, it must be less than six times the Eligible Borrower’s adjusted 2019 EBITDA. At the time of upsizing and at all times thereafter, the upsized tranche must take priority above all the borrower’s other loans or debt other than mortgage debt.
 
Still have questions? We highly encourage you to seek clarification through the Federal Reserve’s FAQ page on the monetary policy of the Main Street Program.
 

Need Help with Determining the Next Steps Financially for your Business?

 
Perry & Associates CPAs has multiple offices throughout the Mid-Ohio and Ohio Valleys and we are ready to help you navigate this complex lending program.
 
Contact us for service you can trust!
 
Marietta, OH
(740) 373-0056
 
Cambridge, OH
(740) 435-3417
 
St. Clairsville, OH
(740) 695-1569
 
Vienna, WV
(304) 422-2203
 
Wheeling, WV
(304) 232-1358