In a nearly unanimous vote of 417-1 on May 27, 2020, the House approved the PPP Flexibility Act that eases some of the restrictions on how small businesses were both permitted to use PPP loan funds and how many weeks they had to do so before the loan forgiveness process could begin.
On June 3, 2020, the Senate voted to approve the PPP Flexibility Act which alters the PPP loan use terms to allow small business borrowers to reduce the percentage of the loan that must be earmarked exclusively for the use of payroll from the previously-established 75% to 60%, thereby increasing the amount of funds available to go towards rent, mortgage payment, utility, and loan interest expenses from 25% to 40%.
Additionally, the Congressionally-approved bill expands the amount of time borrowers have to use the loan funds from a pre-existing eight-week period to a revised 24-week period. This extension effectively moves the previous deadline of June 30, 2020 to December 31, 2020.
The President gave the final stamp of approval on the changes to the PPP loan terms on June 5, 2020.
The easement in the amount of time borrowers have to use their loans affords many small businesses that were unable to remain operational, despite having a PPP loan at their disposal, to keep their doors open and working at a capacity closer to that of the pre-pandemic period. It also gives them added time to rehire employees who needed to be laid off, though it simultaneously relaxes the conditions of loan forgiveness related to the number of employees currently on staff that business owners had to meet under earlier versions of PPP loan terms. Provisions in the PPP Flexibility Act allow small business owners to be granted full PPP loan forgiveness even if they are unable to hire enough qualified individuals to restore their workforce or resume full business operations to the extent which reflects the business’ structure as of February 15, 2020.
Under the new bill’s provisions, small business owners may find they are able to restore their employees’ reduced wages to pre-COVID-19 levels.
In addition, the changes move the PPP loan use term for repayment of borrowed funds from two years to five years. While the PPP Flexibility Act retains the 1% interest rate level, it also permits borrowers to defer their payroll tax payments, if they choose to do so.
For more information on PPP loans, PPP loan use terms, or loan forgiveness, contact your Untracht Early advisor.