PPP Flexibility Act (PPPFA) Overview

On Friday June 5, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law and attempts to address some (not all) of the concerns expressed by qualifying businesses and their advisors.

As with all things “CARES Act”, there is still more to come – likely both legislation and guidance – so we’re just continuing to keep you updated with the latest news whilst also stressing we’re not there yet!

The key points addressed by the new Act are:

• The payroll qualifying amount for forgiveness was reduced from 75% to 60%
• The timeline to use the funds is increased from 8 to 24 weeks – note, if you received the loan before June 5, you can still opt to apply for forgiveness at the end of 8 weeks
• The deadline to rehire workers has been pushed back from the June 30, 2020 to December 31, 2020
• There is an easing of the rulings on the calculation of the number of employees needed to be rehired
• The term of any loan resulting from any unforgiven amounts has been extended from 2 years to 5 years

Let’s take a closer look at each of these:
60% Payroll and 40% Other Qualifying Expenses
For businesses that have been unable to re-open or only operate with a skeleton staff, under the 8-week rule, these owners were potentially being forced to pay staff to stay at home and not work. The original Act also assumed that workers were willing to not claim unemployment and quickly come back onto their employers’ payroll. As we’ve seen, many former employees are currently better off claiming unemployment, which was an added twist to the challenge.

The PPPFA Act reduces the amount of payroll spend for forgiveness to 60% and increases the amount that can be spent on other qualifying expenses BUT there is no change to the original list of qualifying expenses.

Many were lobbying to have the qualifying expenses to include spend on establishing and maintaining remote working, spend on PPE, funding inventory and other key needs and it’s unlikely that lobbyists will stop pushing for change on this subject.

8 to 24 Weeks
The second biggest issue around PPP was that it required businesses to spend the funds in the eight-week period from the date funds were received. When you consider businesses that are/were unable to reopen, this meant the business owners were potentially forced to spend the money, but on what?

Changing the timeline gives those businesses the option to wait and save the funding until a time that is good for the business and their employees. That’s great news for businesses that have been unable to re-open but it has potentially opened a can of worms for businesses that started bringing back people as soon as the funding landed in their bank!

An important point to highlight is, any business that received the loan before June 5, 2020 – the date the PPPFA was passed into law – can still elect to apply for forgiveness at the end of their 8 weeks.

The way I am reading this is you have either 8 weeks or 24 weeks and not ‘an apply once you reach forgiveness’ option but there will be more to come in this area as I would imagine the banks will not want to carry the unforgiven amounts any longer than necessary.

Rehiring
Many businesses were troubled by the requirement to rehire all workers by June 30 so their salaries could be counted for forgiveness. The PPPFA now pushes this date back to December 31, 2020.

It’s important to note that the Act did not change the payroll calculations (see our earlier blog post) but the extra 6 months should allow businesses to manage the whole process of reopening efficiently and bringing staff back at the appropriate time to restart more successfully.

However, the Act did add additional exceptions if you still haven’t returned to the full headcount required which are able to document the following:

1. You were unable to rehire a qualifying employee
2. You were unable to hire similarly qualified employees
3. An ability to return to the same level of business activity that you were operating at on or before February 15

We should expect future guidance on what level of documentation is required here but, as we’ve said all along, documentation of everything will be key and do it on a timely basis and don’t leave everything until the last minute!

Loan Term
Finally, if your business does not receive full forgiveness, the term of the loan, at 1% interest, has been extended to 5 years. Also, the first payment on this loan will not fall due for payment until six (6) months after the SBA forgives your loan.

Worthy of Note
There are still plenty of questions left unanswered and fixes necessary, however, so more regulations will be forthcoming with more changes to the PPP program for sure.

A really key point of note and watch for is the possible impact of a letter written on June 2, 2020, from the Consumer Bankers Association and the Bank Policy Institute to the members of Congress. They are asking that all PPP loans under $150,000 be automatically forgiven stating:

• “…considerable gaps in policy, particularly regarding the forgiveness aspect of PPP, … has proven to be unnecessarily burdensome for many of the businesses it sought to help.
• “…their time and resources would be better focused on getting the economy safely back up and running, not processing burdensome paperwork”

There will be more updates coming but please reach out if you have any questions or need any assistance navigating through these times – that’s what we are here for!