On Friday, June 5, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (PPPFA). Yesterday, in a Joint statement, the Treasury and Small Business Administration (SBA) promised to promptly issue rules and guidance, a modified borrower application form and a modified loan forgiveness application which will implement the changes made to the PPP under the new law. They also clarified that June 30, 2020 will remain the last day for getting an application approved under the Paycheck Protection Plan program, and borrowers can still apply for partial loan forgiveness even if they do not spend 60% of the funds on payroll costs.
The PPPFA lowered the 75/25% rule for spending loan proceeds eligible for forgiveness to 60/40%. However, the language used to change this provision appears to limit any loan forgiveness to those that meet the 60/40% threshold for payroll costs spent during the new 24-week period. This provided an “all or nothing” or cliff provision that was unclear whether or not Congress intended. However, comments made by Treasury and SBA make it clear that this is not the case; partial loan forgiveness is still available as intended in the original CARES Act law signed on March 27, 2020.
One other reminder worth mentioning is the employer payroll tax deferral provision of the CARES Act. The FAQs which clarify the provisions of the CARES Act originally stated that this deferral is only available for PPP borrowers up to the date of the forgiveness of any part of their loan. The PPPFA amended this provision to allow PPP borrowers to be on the same footing as non-PPP borrowers. Borrowers are now allowed to defer their FICA payroll taxes until December 31, 2020 without limit. This is a significant change that will allow for additional cash flow in the coming months.
Thankfully, this new law will allow for some much needed breathing room as PPP borrowers continue to wade through the rules and the effects of the pandemic. With the extension of the eight-week covered period to 24 weeks, most borrowers will be able to take full advantage of the loan forgiveness feature of the PPP, which is the cornerstone of the program’s ability to bring some relief to small businesses in the wake of the current economic turmoil.
Should you have any questions, please do not hesitate to reach out to your tonneson + co representative.