Jul 01, 2020
By Kim Vine, CPA Partner at Terry Lockridge & Dunn
The Paycheck Protection Program Flexibility Act of 2020 was signed by the President on June 5, 2020. It modifies key provision of the loan forgiveness portion of the Paycheck Protection Program (PPP) loans. Here is a summary:
- Extends the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks. If you previously received a PPP loan, you may still use the eight-week period.
- Provides a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalents for borrowers. During the period beginning on February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness shall be determined without regard to a proportional reduction in the number of full-time equivalent employees if an eligible recipient, in good faith (A) is able to document (i) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or (B) is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020.
- Increases to five years the maturity of PPP loan for loans granted on or after June 5, 2020.
- Amends the percentage of funds used on payroll and other qualified costs. Previously there was 75% payroll costs/25% other costs threshold. Now, in order to receive loan forgiveness, the borrower shall use at least 60 percent of the covered loan amount for payroll costs, and may use up to 40 percent of such amount for any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), any payment on any covered rent obligation, or any covered utility payment. The SBA and Treasury Secretary clarified that not meeting the 60% payroll threshold does not eliminate loan forgiveness. The borrower will continue to be eligible for partial loan forgiveness.
- Amends the loan deferral period. The borrower may defer payments of principal, interest, and fees until the amount of forgiveness is determined and documentation remitted to the lender. The loan deferral period for those PPP loan recipients who do not apply for forgiveness is 10 months after the applicable forgiveness period ends.
- The CARES Act delayed payment of employer payroll taxes for all but PPP loan recipients who received forgiveness. The Paycheck Protection Program Flexibility Act lifts this ban.
As always, the accountants at Terry Lockridge & Dunn are ready to help you with your specific situation. They can be reached in Cedar Rapids at 319-364-2945 or in Iowa City at 319-339-4884.