June 9th, 2020

PPP Loan Program Updates: Enactment of Paycheck Protection Program Flexibility Act Brings Forgiveness Period, Payroll Cost Threshold, Loan Maturity and Other Changes

The evolution of the PPP continues. On June 5, the Paycheck Protection Program Flexibility Act, which enjoyed bipartisan support in Congress and includes many changes designed to provide more flexibility for PPP borrowers, was signed into law. Highlights include:

  • The new law extends the current eight-week forgiveness covered period to the earlier of (i) 24 weeks from the loan origination date, or (ii) December 31, 2020. Borrowers who have already received PPP loans may elect to use the eight-week period.
  • The new law reduces the payroll cost threshold for PPP loan forgiveness from 75% to 60%, allowing up to 40% of PPP loans to be used for non-payroll costs. (We note that this provision may be changed again out of concern expressed in the Senate that, as written, it could be interpreted as creating a “cliff” disallowing any loan forgiveness if borrowers do not use at least 60% of their loans to cover payroll costs.)
  • Under the new law, PPP loans originated on or after the date of enactment of the new law will mature in at least five years, instead of two years. While PPP loans originated prior to enactment of the new law would remain subject to a two-year maturity, lenders and borrowers may agree to modify maturity dates.
  • The new law extends the period during which PPP borrowers may defer payment of unforgiven loan amounts from six months to 10 months after the last day of the covered period.
  • The new law extends the safe harbor for rehiring and restoration of  full-time equivalent employees and salary/wage reductions from June 30, 2020 to December 31, 2020. The new law also expands eligibility for forgiveness to businesses that are unable to return to pre-COVID-19 (prior to February 15, 2020) levels of business activity due to compliance with federal guidelines related to sanitization, social distancing or other COVID-19 safety requirements.
  • The new law allows for deferral of the employer portion of FICA taxes for PPP borrowers whose loans are forgiven.

If you have questions about these PPP Loan Program updates, or about other corporate or tax issues, please contact Jeffrey Marks at 212 826 5536 or jmarks@fkks.com, Jay Rand at 212 705 4825 or jrand@fkks.com, or any other member of the Frankfurt Kurnit Corporate and Tax Groups.