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The Paycheck Program Flexibility Act was signed into law on June 5, 2020. This comes just in the nick of time as the original covered period under which the PPP loans could be used and forgiven was about to expire for the initial recipients of the PPP loans. In the original PPP under Coronavirus Aid, Relief and Economic Security (CARES) Act, the period in which the loan was required to be used to be forgiven was 8 weeks. The PPP Flexibility Act extends that period to now 24 weeks. When the CARES Act was enacted, which was March 27, 2020, the loan was intended to bridge the cost to employers of maintaining employees during theCOVID-19 business shutdowns. The loan amount was to be 2.5 x the monthly costs. However, three months after the CARES Act was enacted, businesses have not open or have not fully opened.
Other provisions include more flexibility for exemptions based on employee availability. In the original CARES Act, loan forgiveness was reduced if the full-time equivalent count was reduced during the covered period. The PPP Flexibility Act provides for an exemption to that reduction for an employer who is able to document for employees who the employer can document (a) an inability to rehire such employee who had been employed on February 15, 2020 but for whom the loan recipient was unable to rehire by December 31, 2020 or (b) inability to rehire similarly qualified employees for unfilled positions by December 31, 2020.
The PPP Flexibility Act also provides payroll costs must be at least 60% of the loan. This is a reduction in the 75% requirement specified in the Treasury’s Interim Final Rule, that went into effect shortly after the CARES Act was enacted.
Another notably provision of the PPP Flexibility Act is to extend the period to pay the loan. Under the CARES Act, the time period was “of no less than 6 months but not more than one year.” The PPP Flexibility Act replaces that language with “until the date on which the amount of forgiveness is remitted to the lender” and adding a deadline to apply for forgiveness of within 10 months after the last day of the covered period and expressly clarifying that the deadline to make payment is not earlier than 10 months after the last day of the covered period.
The Treasury and/or Small Business Administration is likely to issue further guidance to reconcile its prior guidance to be consistent with the PPP Flexibility Act.